Cloud never died. He also wasn't a failed Hojo project. Zack and Cloud were injected with Jenova cells after Cloud threw Sephiroth into the depths of the reactor. Then they would both escape and go on a truck to Midgar. Right before they arrived, Zack would be killed protecting Cloud, and this is when Cloud takes Zack's clothes, sword, and even his personality. This is when FF7 begins.

I agree with you about it being young Cloud though, CloudZ. If you notice before giving Sephiroth the Black Materia after the Temple of Ancients, who is telling him to stop and to not be afraid? Young Cloud.