OOC:There is a spoiler warning in the topic. :rolleyes2

The flashback in disc one was the one that never 100% officially happened, as you can see the one that you see in the Lifestream sequence in disc 2 is the one that officiall happened.
If you ask me the flashback on disk 2 makes even less sense. Infact it's probably aiding the cause for debate, especially the scene where Sephiroth stabs Cloud and yet Cloud somehow seems unaffected by it, and even throws Sephiroth from the edge with his stabbed chest.
Eh, it's quite a messed up yet brilliant plot twist.