There are notable differences between the characters in terms of stats and materia slots available from weapons. They're not carbon copies of each other. However, given the end-game weapons/armour and the fact that many materia combos can work as well with different individuals, it is common for the lines between the characters to blur, especially later on in the game. Unlike class-based systems such as FF1, 4 and 9, the flexibility allowed, and the fact it is applied to everyone, means that essentially characters become vessels for whatever setup you may have. FF7 is by no means the worst purpotraitor of this however. FF8 took it one step further, whereby the only defintion between characters are their attack damage (from weapons) and limit breaks. Since the stats of the characters are so close there's no much separating them. Late-game FF10 as well will produce nothing but complete copies of characters, but then again the system is designed to do just that.

Personally I feel FF7 was a way of re-invigorating the already ailing ATB system, and allowed for a level of strategy previously unseen in FF (with the possible exception of FF5). Nothing much else has come close since.