Well, usually you need a system lots of times faster than the original one to emulate another machine. Just look at SNES, nor even ZSNES was able of runing it's games decently on anything slower than a 100MHz computer (and I think that the main procesor of the SNES ran at about 3MHz). With HLE you can get a bast improvement, though. Even the Dreamcast was able to run PSX games pretty well using Bleemcast. But Bleemcast was mostly written in SH4 assembler and that's a LOT of work. I don't think anyone would bother doing such a thing without getting paid for it.
As for the movies, don't worry about it. If there ever happens to be a PSX emultor for the PSP powerful enough to handle FF7, I'm sure it will simulate a the CDROM driver from images so you won't need to worry about paths and so.