Maybe the AI modding additions to WallMarket and ProudClod will come in handy?
I don't know of any ways to make characters strong or weak against certain elements, but it might be possible with AI editing. In any case, there are some interesting ideas being thrown around in the Proud Clod thread that could help anyone making a hardcore mod...
And as for adding dialogue, it's not hard (although it is slightly tedious) if you have a program called
fftext. It lets you transliterate to and from the FF7 text encoding system.
In any case, it will be really great if we have a hardcore mod for the PSX version, since that's the one most people have and it's very hard to come by the PC version these days.