The general, rule is:
If the box is unchecked, don't use the FF7.exe from the patch.
If the box is checked, use the FF7.exe from the patch.
Now, the following holds true with the Geforce cards (it's basicly the same rule as above). I don't know about ATI, though.
If the 8 bit pallet says failed....you use the whole TNT patch and check the box.
IF it says pass, you only use the FF7config.exe from the patch and don't check any boxes.
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Any variation to the above rules, will cause an immediate black screen and return to desktop, from my experience.
btw: stay away from that winxp patch, unless you like your windows' midi sounds altered.