I for one would love to see a video wrapper/hack or a beginners guide to replacing the videos in FF7 - PLEASE
I don't think, this would be that easy:
I am only guessing, but I think that for the internal engine the movies are in fact nothing more than another animated background layer. Since the whole background with all its layers is prepocessed and then just pixeldoubled to 640x480, you would have to rewrite the whole engine just to improve the movies as well.
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As for the tutorial, maybe I'll do it, when I have enough time, which would not be the case in the near future.
I used PSMPlay to extract the movies and XVID as Video-Codec.
I didn't choose PSXMC, because some movies, which are actually longer, than they are played in the game (e.g. the opening movie), tend to pause at the end, when I extracted them with PSXMC.
You only have to take special care of three movies: OPENINGE, ENDING2, ENDING3.
The PSX-versions of ENDING2 & ENDING3 are acutally in a half-letterboxed 640x192 format, which the PC version can't play, so I resized them using some filters in VirtualDub to full-letterboxed 320x224 like the PC-originals.
Furthermore, as some people already mentioned, ENDING2 and OPENINGE don't include music on the PSX, only soundeffects.
You can either choose to use the low quality sound from the PC movies instead or remix the PSX track with the original soundtrack (like I did).
It is a little bit tricky to cut and insert the music at the correct position, but the results are far better than the PC track.