Sephiroth's spelling is a symptom of the same thing that sparked the Aeris/Aerith debate. In Japanese, Sephiroth is written SE-FI-RO-SU, and as Jari says with a silent 'u'. This is not necessarily to indicate an 's' sound, but rather because it's the closest they have for representing an unvoiced 'th' sound. Aeris/Aerith, by comparison, is written E-A-RI-SU.
So the reason they chose Sephiroth and Aeris as the English spellings are simply because they look better than Cefiros and Earith. The chorus, however, was managed by Japanese who most likely just romanized the katakana spellings without much thought. Thus, the exact sounds might not have been entirely accurately represented to our English ears, but probably sounded fine to the Japanese.
