I have to disagree. Resident Evil predated it by a couple of years, and used the same form of graphics (prerendered backdrops with realtime characters and objects) and managed to outclass it. Given how quickly graphical technology grows, that's saying something. As for the CGs, they're good, but if you look at what Silicon Knights was doing with the older Blood Omen, they just seem a lot less impressive. The computer version was much better, but only from the benefit of being higher resolution, and it was done later on. It's sadder when you realize that this wasn't Square's first foray into 3D by any stretch of the imagination. They did Tobal No. 1 before FFVII, and even though Tobal had a grand total of 10 textures for the entire game, it still looks more polished. the frame rate is better, the CG moves more quickly, and it looks more colorful in general. They had also done work on a 3D tech demo using characters from FFVI. It looked better because it was done on a higher power machine, but it was YEARS before FFVII. No, I don't think that FFVII had terribly good graphics for its time. Some of the most painful moments are watching bosses who have a death animation in the terrible, terrible low fps.
If you don't believe me, it's generally agreed amongst Square staff that they could have done better with the game if they'd spent a little bit longer on it. In fact, the US version is a little more polished (nothing major from what I hear, just better textures and backdrops), if that doesn't say "rushed product", what does?
But was it terrible? No, just over-hyped.