Square-Enix isn't above doing remakes. Everything up to six has gotten ported, some multiple times, and two have been given graphical upgrades. Chrono Trigger and FF:Tactics was ported with new stuff and new script. Square-Enix does recycle their own games into new products and
I think FF7 could use a make-over. In my opinion, the game had a solid story. It's graphics suffered because it was originally developed for the N64 before Square decided the Playstation's CDs would benefit it more. FF8 shows that they could have had much better graphics if it was originally build for the Playstation. Sure, Square-Enix may have shot themselves in the foot with the tech demo, using one of their most popular titles as the content. It sparked a greater flame of FF7 fans that want to see it remade with enhanced graphics. For the most part, the assets are there. They already made models of the FF7 cast for the tech demo, Advent Children, Dirge of Cerebus, Crisis Core, and even Dissida uses some.
Use the Crystal Tools engine, reuse the backgrounds, slap in new models, maybe tweak the script. Using a small development team to make the changes, they could put it out and give the fans what they've been clamoring for. Both the Japanese and US markets would jump at it. Probably won't be a major profit scheme, but could pull in some money and some new fans.