1st - It was after a large battle. I would certainly hope that they'd have some service for their fallen. You say it was an avoided issue, and I say that avoiding it made it a bad game in my eyes.
3rd - So? They're still honoring the dead. Still, it's a moot point. Why? There are plenty of graves in this world - in particular, (SPOILER)the graves at Trabia Garden and Raine's grave. Graves usually imply that there's some sort of funeral service. Saying that there have been cultures in the past that do things differently doesn't mean that this one is the same. And yes, I am going to base my assumption of "popular" cultures, because a lot of other things in FFVIII are based on popular cultures. If the people in FFVIII cannibalized their dead, you'd think they'd mention that somewhere, wouldn't you?