Actually time isn't altered by that. Laguna and co. had the powers when they went through it. It just happened that effect preceded cause in this case.
While all of Hootenany's points were indeed reasonable, only one can only be argued through speculation that I can see.
That being why doesn't Rinoa realise. Well she's had a lot longer to forget, her mind has been warped by magic, and it took Squall and co. a hell of a long time and someone there to tell them before they remembered.
Actually two if you count remembering the place, but that just gets explained with the R=U theory if looked at from start to finish.
