Your experience is pretty different from mine and I am using a Droid 2 also. I am not sure exactly what your settings are (you can see all of mine earlier in this thread) but I have almost no slowdown in FF7 at all. With the most recent build (I just tested some play in the world and in battles/cutscenes at the beginning of the game a few mins ago. Played through the first boss.) there is some very minor audio slowdown on battles loading (they load as fast as an actual psx for me) and there is some minor audio slowdown when a very graphical spell is used, but overall it is more than playable and my slowdowns are so rare I don't really notice it.
That said I am not running the stock OS. I am running Liberty v1.5 and am overclocked to 1.1GHz @ LV. On a side note, I have noticed that liberty tends to significantly improve the performance of any app I have ever used over stock so maybe that has something to do with it. If you are pure stock on your Droid 2 the verizon bloatware that is always running in the background may have a pretty severe performance impact, I'm not sure just trying to throw a suggestion out there that might help you. Edit: Thought about it for a few mins and another suggestion might be to try using something like Titanium Backup to "freeze" the bloatware if you haven't and see if you get any performance boost. The unfortunate truth about the Droid 2's is that the stock motoblur (motorola's "custom" android skinning and options)+verizon bloatware (the stuff you can't uninstall and every time you force close it the apps immediately restart) cripples the hardware pretty badly.
I think that might be due to Liberty, as you said, you've done some serious modulation to your Droid. I'm not really ready to do that yet. The small audio hiccups during battles starting is something I expect, and it does slow down there. Gameplay itself is fairly smooth, the cutscenes are also smooth. It's hard to explain the audio problem I'm having. It's like... certain notes are missing. The baseline music is there but certain tones or beats don't sound at all. For awhile, the intro music for the game starting didn't even play, it was just a clicking sound.
Overall though, that's the only problem I've been having, just audio. I noticed after saving the game, it's the same thing in Chrono Cross, Diablo, and Xenogears. It's like the sound downgrades itself after I close FPSE and load a save game file for that game. Can't explain it. /Shrug.
As for bloatware, I uninstalled or closed anything sucking down battery life when I first got the phone. The only real big change I made (if you call it big) was LauncherPro and Beautiful Widgets.