Tres makes a good point. The OG wouldn't have gone anywhere if Sephiroth wasn't obsessed with Cloud. I mean, all Sephiroth would have to do is "wake up" Jenova, send it over to Temple of the Ancients, get the Black Materia, and bring it back to the Northern Crater, and then its GG. Instead he messes around with Cloud long enough for Cloud and Co. to actually have a good reason to destroy him. You'd think that after he'd absorbed the Lifestream he'd know better. So, yeah... I actually feel that KH and the rest of the Compilation is pretty consistent with his character.
The only interesting thing for me about Sephiroth is how after he finds out that he was lied to about Jenova being his mom, he still wants to destroy everything. It's not like he actually admits to himself that he was wrong in his initial understanding of what relation he has to Jenova. For whatever reason, he has to lie to himself about his own origins, when that's what he was trying to find out about in the first place. My thought is that his obsession with Cloud stems from that fact that if Cloud, a no-name person of normal origins and no genetic manipulation what-so-ever, can beat him, then Sephiroth's initial thought (from when he was ane!) that the reason why he felt "special" was because of his non-human origins is wrong. And Sephrioth is prideful enough that he has to be right, so he keeps trying to defeat Cloud to prove Cloud wrong, and keeps failing.
Also, there isn't anything wrong with flat, uncomplicated villains, if they're done well. And while OG Sephrioth is on the flatter end of the character spectrum, he fulfills the role he was to play very well. Hell, Sauron in LOTR has less screen time...