In the japanese FF7 demo, we can hear a couple of songs with better instruments (because the soundtrack wasn't finished so they needed less instruments, meaning more space for them) and it indeed sounds much better. Since there is limited room in sound RAM and that it has to hold all the instruments for the whole game, the instrument's quality is poor.
In the cutscene before the final battle, voice samples are overwriting the last part of sound RAM (and it remains overwritten during the whole ending) However, FF7 only writes to it at two times:Ģ. Most PSX games that use sequenced music write to sound RAM before every new song. With PSX's FF7 sound engine it's impossible to make it sound (significantly) better.