That's because the quality of midi back then was piss poor

Midi today is way better, as you can very well see with all the new game music that's out now. Most of the music you hear on FFXIV is still midi, just really good quality midi. Back in 1997, midi wasn't as great, and that's why it sounds so meh in FF7. Also, the game disc could only hold so large of music files, so the less quality the sounds were, the smaller the file would be.
I also don't mean to sound like a up-nosed jackass, but I want to add that I write music as well, both using electronic midi arrangements and writing scores for orchestra too. I have a fair amount of experience with how this works.