I think the reason Square is so adamantly against it is because people seem to be insisting on a full-on PS3 overhaul. Anyone with even a passing familiarity with Square knows that this isn't how they handle remakes. While I don't doubt that it would sell very well, it probably would be prohibitively expensive, not to mention the fact that it would pull attention away from Square's flagship title of the moment.
Now, handhelds, on the other hand... That's a whole different ball game, isn't it? Look at the DS; both FFIII and IV got remakes, and not just "shinier graphics!" touchups, either. They got completely made over, with sprites swapped out for polygons and text for voice acting and everything... And that was on a console with power roughly equivalent to that of the Nintendo 64.
Given the alleged power of the 3DS and Square's mounting financial and critical hardships, I have very little doubt that we'll be seeing FFVII: 3DS or something very soon, and frankly, I'm okay with that. Jumping from PS1 visuals to what is essentially a portable Wii is enough of an upgrade for me. Those hyper-realistic visuals wouldn't have suited FFVII, anyway.