Okay I've been waiting for days to get back to my computer so I can go into the detail that I want about this thread.
First off, Sephiroth is an amazing villain. He hits the perfect level of detached and yet strangely sympathetic. By us learning about the elements that drove him to the point where he became the villain we see how his perception of the value of his humanity drove him to becoming a monster. This is a megalomania that is actually almost the exact opposite of the one that we see in Kuja from FF9.
Where Kuja desires to live through any means because he knows that he is mortal and fears death (as well as using that fear to wish to overpower death by... killing everything... good motivation there buddy), Sephiroth fully embraces his self-proclaimed status of not being human by, in a twistedly admirable way owning it and saying that he is the next step in our evolution and will become a God by destroying all that exists.
I'll admit that the initial spark is kind of weak and random (assuming you don't have the build up from Crisis Core). I often joke that Sephiroth's motivation is that he gets pissed off because he's not a real boy.
But still over all, he manages to pull off a very threatening villain. He is the only villain in all of my videogaming who I said to myself whenever he was on screen "I hope I don't have to fight him right now." He's intimidating and frankly he can be downright scary (his theme and Trail of Blood are some of the scariest bits of final fantasy music ever).
BUT, and here's where we come down to it, I do believe that he is a bit overrated. The fact of the matter is that he is not a complex villain. Not that his background storyline or even, perhaps, motivations are not complex, but his function within the story is not complex. He is going to destroy the world because he's pissed off and he will toy with Cloud because Cloud happens to be something in his way. It's implied that he toys with any person or thing that happens to get in his way so his relationship with Cloud is not as special as people might think (again, this is just my opinion).
Frankly it's hard to write a complex villain when you create a villain who is an unstoppable badass. Nothing gets in his way, therefore nothing sets him off course. It is though conflict that interesting characters are made and during the course of FF7 the only "conflict" that Sephiroth faces is in Disk 3.
You can make the unstoppable badass thing work if, for instance, you add an emotional element. Take Sin from Final Fantasy X. Without spoiling anything, We learn that Sin has a deep emotional connection to one of the characters in the game and does his evil deeds only because it is Sin's nature. We even see Sin alter its decisions because of the presence of this character. It gets to the point where we are simultaneously happy and scared to see Sin appear because we want the emotional arc to continue.
Getting back to Kuja, Kuja I felt had a weak motivation for a villain, but I enjoyed the character that was portrayed. He is an arrogant fop which makes a great counter to Zidane, but at the end of Disk 3 we finally see the humanity. We see what all the evil and villainy was building up to, a very real and very relatable fear that Kuja was simply unable to cope with. And because he was born with power, he used it to try and stop it.
Sephiroth was as emotionally detached from the situation as Kefka was in the second half of Final Fantasy 6. Sure, he toys with Cloud a bit, but we are not seeing any variation. It's almost as though Cloud's responses have no impact on Sephiroth's intended actions. Cloud is plain and simply a toy to be put away when done with to Sephiroth, not an emotional foil.
So again, not to discredit Sephiroth's great aspects as a boogeyman villain, but I feel that he could have been a much stronger villain. There is credit to the argument that he is more scary because he is less relatable and less human, and that is a great counter-argument and one that I feel really defines what they were going for. And there's no question that it worked for the game. But they the tiniest bit of humanity to Sephiroth in Crisis Core and it yields an impressive payoff under the same circumstances so perhaps he could have been even better.
