It's located in your registry:
Start->Run->Regedit
My Computer\HKEY_LOCAL_MACHINE\SOFTWARE\Square Soft, Inc.\Final Fantasy VII\Data Drive
Change this entry to X:\ where "X" is the letter of CD drive you want to run the game from. You'll also want to change the MoviePath to include that drive letter as well.
Or you could copy all the movies (870 MB I think) to your hard drive, have the MoviePath entry point to the path to those movies and play them from there. That way there's no CD-lag and they'll play without skipping.
