1. Yes, it's totally possible to make him a better final-battle. There's room for 32 attacks in any scene and his scene only uses 17. Don't touch Done-In. It's very specific attack that needs to stay the same. Feel free to add more attacks.
2. Yes, his AI will need significant re-writing. From TFergusson's Enemy Mechanics guide this is his script:
AI: Setup
{
Sephiroth's [402C] = 1
}
AI: Main
{
Choose Cloud
Use <Cut> on Target
Set Cloud as Self
Choose Sephiroth
Use Attack Command on Target
}
AI: Counter - General
{
Choose Self
Use <Done-in> on Target
Remove Self
RunCmd 0x22/0x0F
}
AI: Counter - Death
{
Choose Self
Use <Done-in> on Target
RunCmd 0x22/0x0F
}
AI: Counter - 13 [Post-Defeat/Battle]
{
[2110] = [2110] OR 0x08
}
There's plenty of things that could be changed, but don't leave out the Initialize script, RunCmd 22h/0Fh in the Counter-Death script or the Post-Battle script. Since we don't know for sure what they do.
402C is almost certainly "Don't allow death visual". ie, when target "dies" it flashes red and disappears. If this is set then the target won't do that. It's mostly only used in boss battles when the boss has a specific run-away animation.
Command 22/0F and the 2110 OR 08 have unknown functions.
Still, shouldn't be too hard to do.