Just for info, FF7 had 3 CDs but the game itself actually fits in 250 MB of data, and each CD has 400 MB of videos which mostly differs themselves from a CD to another CD just because they contain FMVs of different story parts of the game. So without FMVs, FF7 would have fit 250 MB, only 4 times more than the largest N64 game. Your point still stand of course, I'm just pointing out the difference is not as tremendous as it first sounds.
It's amazing how much data you trim off a lot of Squaresoft games when you get rid of pre-rendered videos and such. I was kind of shocked to learn that Vagrant Story only took up 96 MB of data on my PS3 and FFT: War of the Lions, despite adding MORE content to the PS1 version AND having more pre-rendered cutscenes to boot, was only 195 MB big.
If you think about it, Squaresoft could have gone multi-plat during that generation. If Capcom could compress RE2 onto a cart without making it total garbage, Squaresoft could have probably made some great games on the N64.