About the menus, take a look at the "Special game fixes" to select the fix for FF7. Also try the "nice" settings on Pete's GPU and set the "Framebuffer" value as high as possible.
As for the CD problems, give a try peops or sapu CDr plugins, and select your CD/DVD-ROM drive on them. Also you might need to install ForceASPI (forum search), or use the Windows 2000/XP IOCTRL (set it up on peops too)
Last but not least, I'd recommend you using ePSXe 1.5.2 (find it on the official web site), PSXeven or SSSPSX


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