I experienced the same trouble where Bugenhagen takes the key of the ancients and places it in the music box and as the key fits into place the game seems to freeze, lock or just hang around. In my case Bugenhagen just bobs up and down doing his default move, staring at the key and nothing else happens.

I tried for weeks with ePSXe and PSXFIN, but recently i tried PSXeven. This emulator didnt experience this problem.

I loaded my last save point just outside the cave and walked to the left into the house/hut where i saved my game using the save point, saved the game to memory card 1 and quit the emulator (then PSXFIN). I loaded the same ISO (FF7 disc 2) and the same memory card (.mcr file) into PSXeven, and the game worked flawlessly. All sounds, FMV's and even graphics looked better.

For months (and years!) no one had a fix on this problem and most assumed it was a ISO file or disc corruption.

Anyone had any experience with PSXeven?