Well, I'm not at my home PC right now...so I can't be too specific.
For drive access, I use CDR Mooby. It is designed to read ISO images, which I really do recommended. For normal CD access, however, I use P.E.Op.S. CDR.
For visuals, I use Pete's OpenGL2 PSX plug-in. It has a great set of filters and can really pump out some nice visuals.
I use different sound drivers, though, depending on the game. P.E.Op.S. DSound and Eternal SPU are the two common ones.
Check for any special toggles in the plug-ins related to FF7 and try using Mooby's plug-in + FF7 ISO.
Buy a PS2 or PSOne and keep it
PSX games look quite awful when running on the original hardware. Emulation has finally reached the point where most games run perfectly. I resort to my PS2 whenever there is a problem, but I prefer using emulators. Also, PSX output on an HDTV is EXTREMELY pixelated...