I think this is a great idea!
I would suggest focusing your talents on a part of the story that you find especially moving -- a sequence that would really shine if it were in a movie form rather than a video game form. Translating a story into different mediums has its upsides and downsides -- one has the opportunity to tell a story uninhibited by the task-oriented structure of a game, but one also faces the risk of losing the audience without the intimacy of a game's interactive nature. It's an exciting challenge to be sure!
I would avoid the Nibelheim Incident as I think that it's been done to death (and I'm sure others would agree). Instead, look at other sequences that might not otherwise get an opportunity to be told/retold. We had a thread a while back talking about Dacon (another member on here) making us a Comic-book of a game sequence, and several sequences were listed by fans as desirable:
-The Yuffie/Stolen Materia Sidequest
-Aeris' Death
-The Fall of Sector 7
-Escaping from Junon (Disc 2)
-Motorcycle Chase
Or you could consider an animated adaptation of one of the "On the Way to a Smile" novellas.
Any way, good luck!