We haven't played in a while, since I got KH3 and they are really into that right now. But here's where we are:
They loved the Cosmo Canyon music. I hear my son randomly humming it all the time now. They thought Bugenhagen was weird because he doesn't have legs and just floats around like a ghost (I always thought that too). Their respect for Red XIII has grown after this segment, though they still prefer a combo of Barret/Yuffie/Aeirth for battles.
Neibelheim, with its creepy music and wierdos wandering around, appropriately gave them the heebie jeebies. My daughter astutely pointed out that the whole place should be burned down but why does it look the same? Then my son said 'maybe they built it really fast'. For some reason they really liked that part where "Sephiroth" throws the Destruct materia at you. I guess they thought it was funny he would give you something helpful when you should be fighting him. We tried to figure out the safe combo using the hints but it took too long and I missed a number somewhere so I just looked it up. *shrug* Vincent sleeping in a "box" was very funny. He was an immediate favorite in battles due to using guns and being able to transform into a monster.
Next up was Rocket Town. They didn't like Cid as much as I would have thought but maybe he's more of an adult character compared to the fairly cartoony mannerisms of Barret. They did question why he is so mean to Shera. They also liked that we got a plane and then were sad that it just became a boat.
We wandered the sea a bit in Tiny Bronco and then landed on a new continent. We were on our merry way when... you guessed it! Yuffie stole our materia. This was really the moment I was waiting to show them because it is so random and hilarious. We left it here because it is a nice cliffhanger. My daughter wants to be Yuffie for Halloween now, but I feel like we should wait a year to do the FFVII costumes when the remake is out.