I think the best example of a hardmod for VII has been New Threat.
Yes, enemies are beefy, but they also threw in unusual behaviors. I'm not that far into New Threat, but I was already fascinated by how I had to maintain Barret's stacked buffs, and how much more intense the Scorpion Guard battle became when it's previously useless scan ability became something that could completely undo my stacked buffs if I didn't correct Barret's row location asap.
So I think the key to difficulty is keeping things from falling into a set pattern. You can't have enemies act randomly, but you can't just have every enemy be as simple as Hit It's Weak Point And It's Dead.
If there were a skill tree for each materia, I'd want it to be a lot of behavior changes but only a limited number of skills said materia can learn before it's maxed it. Do I go for an augment that allows me to have a wider area of effect when ALL is attached? Or do I give it tracking properties so it can hone in a single enemy that might have the ability to avoid the spell that would otherwise be able to kill it?
Then later on, maybe end of Game 1, we can get our hands on a system that allows us to fuse that together, so you can start narrowing down your very large materia collection.