The only way I beat Sephiroth on a stupidity run was through the use of W-Item. I was fighting him at a whopping level 45 and I think all of the characters beside cloud still had a level 1 limit break. I am pretty sure Cloud was only at level 2 but he might have still been at level one. I forgot to equip the one ribbon I had but I did have some stuff to help prevent a total raping. In the end it was a war of attrition as Sephiroth proceeded to blow up the universe an insane number of times. I eventually got into a groove when he ran out of MP and couldn't do anything.
Did I have Buhamut Zero? Yes but no one had enough MP to use it. I only used low level summons because they didn't cost much MP and that was early on in the game. Eventually their negative stat influence forced me to go with the only summon that mattered...Choco-mog! It would sometimes freeze enemies briefly and it does actually work on Sephiroth.
Screw Cloud's Level 2 limits. Those suck! Stick with Cross Slash as it sometimes freezes enemies as well. Plus level one limits happen every hit near the end of the game.
Overall this game is very easy. If you want a challenge just do a low level run. It makes a huge difference because you are not going to be leveling up Materia or limits due to lack of fighting in random battles. Hell you can ALMOST easily get through disk 1 fighting only bosses (only the Demon Wall takes effort because you can't beat him without grind stealing left arms from bombs on the bridge to Barretts hometown trout hole...screw that).
My lowest whatever try was level 38 I believe. The trick is to defeating the Jenova Synthesis in a certain way so you gain no experience. Kill it and bam! 5 levels :P
I do it because I find it still easy and somewhat challenging =D