[Without even touching on the fact that FFVII was the first one to really go mainstream in Europe etc] I'm pretty sure the reason why people remember she was killed is because of the love triangle you witness and how during the majority of Sephiroth's monologues about the Cetra and then emphasis on how she is the last surviving one and so integral to the known plot at the time (it's easy to look back in hindsight when you know how everything played out but when looking at a scene like this you really need to look at it from that specific moment in time when the audience first experienced it). So she got built up as being integral to the story with a lot of emotional investment. Then BAM she dies. Oh and she doesn't just die, she gets murdered in cold blood. That was pretty uncommon for the time in videogaming.