I find the use of the term 'Fan Service' interesting in the context of the LTD. CAs will often call the CT kiss fan service, followed by "disconnected from the story". Of course, fan service can be very connected to the story.
For example, Cloud and Zack teaming up at the end of Rebirth to fight Sephiroth is undoubtedly fan service, but no one says it's disconnected from the story, because neither of these characters are involved in a bitter love rivalry.
To say that Cloud kissing Tifa, the woman he's had a crush on since childhood, who would eventually help restore his memories, who he spends the night with before the final battle, who he will live with after the events of FFVII, is "disconnected from the story" is willful rejection of the story. I think some cleriths need to say this because the kiss re-contextualizes everything else between Cloud and TIfa that has come before. No one can say their relationship is strictly platonic now.
So the kiss is definitely fan service, AND connected to the story.