Did you check to see if MIDI is muted in the Windows volume control? If that doesn't work, try updating your sound drivers.
Why, you ask?
The Sound effects and the M$-GS softsynth use the same "Wave Device" for output. Most of the time this isn't a problem, because drivers these days are able to cope with the M$-GS softsynth playing at the same time a sound effect is playing.
However, there is always a chance you are using an older driver that simply does not support it -- so either the M$-GS synth can play a MIDI, or an application can play a sound effect, but both can't make sound at the same time. In the case of FF7, the older drivers won't let you have both sound and MIDI, because its trying to do both at the same time.
Finally, if that doesn't work -- try reinstalling DirectX. And if THAT doesn't work, you might want to consider getting a new sound card.