1. DarkFang hasn't logged on in nearly a year, there's no way he's even gonna see your question.
2. This thread is three years old; I doubt he even remembers the answer.
3. Reviving old threads is generally frowned upon, unless you have something useful to add. A question really ought to get a fresh thread.
If I had to guess, I'd say what's going on is that the game was made back before analog sticks were particularly common. Before analog gamepads, the D-Pad would be assigned as JoyUp, JoyDown, etc... In an effort to make sure their new analog sticks worked on older games, gamepad devs assigned JoyUp, etc. to the analog sticks, and reassigned the D-Pad as POV hat switches (even though technically, a POV hat is only a flightsim thing and totally not a D-Pad). As far as I can tell, FF7 does not support POV hats.
Easy solution: use
JoyToKey to make your D-Pad mimic the keyboard keys for movement. It's free, it works pretty well... I actually prefer
Pinnacle Game Profiler myself, but that one isn't free, so I don't really recommend it to most people.