And here are some more photos from 320x240.

I get some minor text corruption in FF7 on a GeForce FX 5900XT, but nothing as severe as what you're experiencing. Otherwise, the game renders fine.

I do remember needing to untick the Nvidia option in the external config, since that's meant for Riva/TNT cards, and can cause issues on GeForce and up.

I think you have to tick Nvidia and TNT in the config in hardware mode or the game won't start because of paletted textures or something like that.
It's all about the driver version. I use drivers version 81.85 with a Geforce 6800 in Windows XP and it's fine, but I've seen the same drivers work fine with a Geforce FX and I think it was in Windows 98. With drivers version 61 it wasn't working, and with 307 it was glitched.
I still have a very small glitch when pausing the game in a fight, the pause text starts moving. It also moves the description of the enemies if you show it. Maybe there's an even better driver that doesn't have this. I read somewhere here that the last good drivers were 71.84.

I kept trying drivers sequentially and found that it isn't until the 80-series drivers that FF7 will render correctly, requiring the NVIDIA checkbox with the TNT2 option to be selected.

However, this driver version does not retain support for palletted textures. It also has significant graphical errors in Final Fantasy 8.

Edit: I just realized that there is a special patch for GeForce cards to fix the FF8 graphical errors. Nevermind!