There's still a big difference. Magicite was used do develop CHARACTERS -- the character itself advanced. Not the magicite. So, for one thing, every character was different in the sense that it took more than trading equipment to make one character into another. Sure, eventually they could learn the same spells, but the characters would have to learn them -- Edgar and Sabin were two different characters, and making them trade equipment kept them the same characters they were.
For another, each character had their own unique ability that distinguished them from the others. The only unique abilities FFVII had were Limit Breaks. The way I played (at least), limit breaks didn't matter much, as they were "bonuses", not set abilities -- this is in direct contrast to FFVI, where parties were established based on what abilities complimented each other. (For example, you wouldn't want to put Relm with Gau or Umaro, as their attacks might screw up her Control.)
As far as their weapons go ... Realistically, different characters are going to be able to use some of the same weapons. Each and every character (save Umaro, of course) could use multiple types of weapon -- staves, spears, swords, daggers, etc. It wouldn't make sense for any character to be able to use one type of weapon and only one type of weapon. That'd be like saying I drive a light pickup truck, so that means I wouldn't be able to drive a larger pickup truck, an SUV, a sports car, a sedan, a station wagon, a golf cart, a semi truck, a farm tractor, etc. etc.
(Of course you have characters with special traits, like Sabin, that can use specific types and none others, but this by no means spreads to the entire cast.)










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