I was under the impression that Cloud had been rejected from SOLDIER for most of my first trip through FFVII, but it appears that I incorrectly drew that conclusion; it's more likely that he was too afraid even to apply, which appears to be a large part of the reason he distorts his past story in his own mind.

I was about to say that being imprisoned in materia for five years wouldn't do wonders for Sephiroth's strength, but who knows what kind of magical properties it has.