Uhm... the quality of PSX movies are in fact better than the PC equivalents, but that's mostly because the FF7 engine has decided to render each movie frame to 256-color surfaces before displaying them on-screen. Hence, great ugliness (compared to the PSX, or simply playing the PC movies in your normal media player). Problem is, unless you reprogram the FF7 engine it doesn't matter how your image is compressed, it will still be rendered in 256 colors.
The PSFs would make no difference in the opening and ending though, correct. And as for the rest of the game it should work like normal, so nothing new there.