I did a lot of detective work and managed to locate the kernel.bin file, extract it from the .BIN, edit it with WM, and reinsert it into the .BIN file. However, when repacking the game onto my PSP, it crashes once I select 'Item' from the main menu.
To help clarify: the game does run (I started on Disc One), and as a matter of fact, if I select 'Magic' from the main menu, I can see some of the changes I made: Ice to Blizzard and Bolt to Thunder, for example. But, if I select Item or Materia, the PSP system crashes.
I narrowed the issue to something being edited in the kernel.bin file. I came to this conclusion because I originally started with my 3 physical disc copies of PSX FFVII and packed them onto my PSP as an eboot.pbp. The game played perfectly. But, let's say before repacking them, I modified the kernel.bin. That's when the crash issue comes up. I've tried making less modifications (to the point of just changing Cure2 to Cura), making sure the new kernel.bin is the same or slightly smaller size in KB than the original, but it still crashes.
I've searched and found this thread
http://forums.qhimm.com/index.php?topic=8377.0 which pretty much describes the same issue and the only clue I found was something about the memory alignment?