Awesome news! I recommend implementing some sort of huffman compression if at all possible to alleviate your space constraints.

Dr. Mario,
I'm kinda getting used to the avatars (I think I read they're from a Gundam game). 
I do like the ones you posted, though.  Maybe they can go into an 'improvement patch',
but I haven't really decided if such changes belong in a translation patch. 
They deal with different parts of the memory, so if they were applied as separate patches to the same image they should still work together. 
I'm not impressed with Barret's map sprite, but that falls into the same issue. 
How did you get these images?

RedComet,
Since this is a reverse-engineering project I'm stumped on the prospect of how I'd apply text compression. 
Let me tell you what I DO know.  Let's talk about what I call Dialog Block 1. 

37FD0: Dialog 1  Header
38010: Pointer to Dialog 1a (Addr=Ptr+30010)
38012: Pointer to Dialog 1b (Addr=Ptr+30010)
38014: Pointer to Dialog 1c (Addr=Ptr+30010) ...[FF][FF][40]
38019: Dialog 1a Pointers (Addr=Ptr+30010)
38217: Dialog 1a Text ...[FF][FF]
3B2DA: Dialog 1b Pointers (Addr=Ptr+30010)
3B4D6: Dialog 1b Text ...[FF][FF]
3E185: Dialog 1c Pointers (Addr=Ptr+30010)
3E20D: Dialog 1c Text ...[FF][FF][FF]
3EDDF: Free Space [00]...
3FFD0: Tileset Header ...?

When a pointer references text if the 1st byte is [40] ('@') the following 3 bytes are ASCII-encoded numbers to tell which avatar to use. 
@001 is Cloud, @002 is Barret, @028 is a shinra soldier... Avatars aren't always used though. 
Text is encoded in 2-byte hanzi, and 1-byte ASCII characters (alphanumeric and punctuation, all with ASCII byte values. Rare in a NES ROM). 
The first byte of a hanzi is [B0-C3], the second is [A1-FE].  They are valued approximately in the order of appearance in the game. 
Every line ends with [0D][0A] ('\\r\\n').  If that isn't there the speaker will leak into the next guy's line in-game. 
Every time you change the text you have to update the pointers.  I have a process to take care of these for me. 

Here's a little taste of my FF7 NES CH hanzi to Unicode map:
　　　０１２３４５６７８９ＡＢＣＤＥＦ
Ｂ０Ａ「巴雷特新来的跟着我哨兵入侵者皮
Ｂ０Ｂ克斯哇你原曾经是军人这种可不常见
Ｂ０Ｃ杰森士那吗他为什么和们雪崩组织在
Ｂ０Ｄ一起别样个但已退役现份子了对还知
Ｂ０Ｅ道名字呢劳德嗯感兴趣次任务结束就
Ｂ０Ｆ要离开里该死都干想说过吧行动目」
...
*sorry if columns don't line up in this font. See how the first 3 hanzi make Barret's name?

What's neat about this is that after I have eliminated the need for these characters I can
take advantage by using them to squeeze common 3-letter sequences and squeeze them into 2-byte units. 
This could also come in handy with all those apostrophes.  I don't know yet if I'll end up doing that. 
I WILL use this space to store icons for item, weapon, armor, and materia names. 

WHEW! Drink that in!

Please do not double post unless the previous post is more than 7 days old or is no longer on the first page of the sub-forum it's in.

RedComet,
I'm in full agreement that the battle system needs balancing, and a translation patch is as good as any other excuse to fix it.  It would even help me just to get through the game to test my translation for bugs.  We can either power up attack and magic strength, but rigging enemy HP would be much easier to do.  I've spent hours leveling up and still hit single-digits   It pays to level-up attack materia, but the frustration is incessant. 

Thanks for moving the posts.  I left a link on the other thread to point to here.  (When I saw my posts were gone I thought I was banned! LOL!)

I have finished translating Dialog Block 1 (there are at least 5. 2 and 3 are half-done) and reducing it to an acceptable size.  There are several limiting factors on memory.  We can look back at my Dialog Block 1 byte map for reference.
1) New text cannot run into the consecutive statically-located memory block (In this case it's the "Tileset").
2) Referenced text cannot be out of pointer range.
I got these out of the way by simplifying redundant punctuation and text (I didn't "hack-it-up" to the point of real concern). 
Now let's get to my unresolved issue.  See how Dialog 1 is broken into Header, and 3 sub-blocks (1a, 1b, 1c) with their own pointer spaces?  The sub-blocks are memory-contiguous with each other.  If I add text to one sub-block the following ones shift, which means the pointers to the sub-blocks have to change to keep up.  I have made the appropriate pointer corrections, but my shifted sub-blocks still end up pointing to gibberish in-game.  I considered maybe there are other pointers to fix that I don't know about.  I have compared the Dialog 1 header to the Dialog 2 header to see which other bytes were variables, but they were identical with the exception of sub-block pointer values.  I HAVE to figure out how to safely move contiguous sub-blocks without creating corruption.  I still have to take more time to study the problem... 

EPIPHANY! I may not have to move them at all!  Since all pointers in the same block have the same local addressing system, I can just throw the text that doesn't fit into the free memory area after the last sub-block.  Just use it as overflow space.  No one ever said the lines themselves have to be contiguous.  It'll make the ROM's innards look a little chopped-up, but I think it'll do the trick!  Cross your fingers for me...

I had bug in my pointer-adjusting process and had to rewrite it.  Ate up some time, but who cares, I have great news...it worked!  I can leave sub-blocks exactly where they are, migrate the overflowing text into the empty space after the last block, and have everything work uncorrupted.  I don't know 100% if there'll be problems when the game reaches Dialog Block 2.  I'm 95% confident that will check out.  This breakthrough alleviates almost all of my corruption concerns! 

If you guys want to put in new portraits, you can do that easily on your own.  I've thought about it, but decided to keep the originals.  To me the goal is not to make it look like the official FF7 game.  It's more of a what-would-it-be-like if FF7 was released in the NES era. 

All that business about sub-blocks before...that's all resolved.  There was a bug in the pointer control of my script inserter. 

Hey, I want to upload a patch of my current progress so cool people can give me feedback.  Where can I do that?  I don't want to put it anywhere too official, because it's only about 20% done.  Your save points should still work, but if you use them the first enemy of your next battle may not display properly.  That's no biggie, it goes away.

Its great to know that someone is working on a translation of this game.