I think this is pretty arguable.
Of course it is.
Better battle system?
Maybe, but even though Xenoblade is a bit too automated it still finds away to be very involved. It also cuts out the tedium of jrpgs with lame mana restrictins and the like. It's just more enjoyable to play. I can't even remember much about VII's combat.
Limit breaks, summons, and the absence of automation in battle is exactly why I prefer VII's battle system to Xenoblade. I hate real time systems like XB and FFXII that give me the ability to control the movement of my character in combat, but still make me wait for automatic attacks to queue up. If you're going to let me run around in a battle, do what Star Ocean or Tales does and give me control over when I want to attack. Otherwise it's boring. Side/back/surprise attacks are not interesting.
Better growth system?
Materia is pretty lame. Characters really in the end have no importance. Unlike Vi which had blank slate characters, but your choices of what you attach to them stay and are all up to you. In VII Materia basically makes everyone interchangeable. That alone is pretty weak to me. Xenoblade at least has distinct characters that all have interesting classes and play styles, making party makeup actually important. Unlike VII.
FFVI and FFVII's growth systems are extremely similar. Magicite and Materia are basically the same thing, and the techniques unique to specific characters in FFVI like blitz /rune /sketch are comparable to the unique sets of limit breaks for characters in FFVII. I don't see any major difference or advantage FFVI has over FFVII in this regard.
Putting that aside, I loved all of the different kinds of summons, magics, and techniques that could be unlocked through materia, especially the command type. Double cut evolving into 4x cut, enemy skill giving me the abilities of monsters I defeated, mime, w-summon, w-item, etc. I felt like the amount of strategy you could (and had to for tougher fights) employ in the game gave its combat quite a bit of depth and enjoyment. Xenoblade's technique/skill system is bland/shallow in comparison.
Better story?
Maybe. But then again outside of Cloud's role nothing of VII is interesting to me. Meanwhile the world of Xenoblade and it's mythology while kind of trippy is cool to watch and playout. It's an interesting world to learn about, to see how it works. Outside of Midgar, I never cared about anything in VII's world. I won't forget the world of Xenoblade, how could I? It's two mech gods. XB's story is completely full of twists and turns and it's just entertaining. But thats just my opinion. I also think the cast of Xenoblade is a whole lot more well rounded. Nothing standout maybe, but nothing annoying and they seem to get equal play in the story. I really don't remember the characters of VII outside of Cloud, his story really just dominated it.
We disagree again. Outside of Cloud's story, I was deeply invested in learning about Sephiroth's relationship with SOLDIER and Shinra, his connections to Cloud, Zack, and Tifa and Aeris, I cared about Cid's story and his work with the Shinra Space program, Vincent's history /relationship with the Turks, Aeris' connection to the Ancients/Cetra and Shinra's reasons for needing her, the history of the planet and how it has the freaking ability to deploy bioweapons to defend itself? That world and those characters sucked me in and never let go. Xenoblade did not. Its story did not, and its characters did not. It was interesting, but it will be forgotten when the next big JRPG comes around, for me.
Also, Cyberpunk is just cooler than fantasy, or fantasy/sci-fi whatever the hell XB was supposed to be. That element is always going to have an appeal for me.
Better music?
Eh they both fall short compared to FFVIII.
Xenoblade's soundtrack has a handful of great tracks, but too much of it sounds the same I think. Many tracks sound too much like varied renditions of other tracks, and nothing sounds memorable. Everything sounds good, but not memorable. It doesn't establish the kind of connection with its narrative that's needed for it to be so.
FF soundtracks, on the other hand, ARE a part of their stories. Character themes, world themes, main themes, boss themes, are always representative of what that particular game is about. FFVII is a moody, melancholy, dramatic, tragic mess from beginning to end, and its soundtrack supports theme flawlessly. I could tell you to listen to a single track,
Anxious Heart, and you would know instantly how that game feels.
Succession of Witches or
SeeD does the same for FFVIII. XB just doesn't make that kind of connection.
I'm not sure why btw. I'm an enormous fan of Mitsuda, and Xenogears, CT, and CC absolutely succeeded in having memorable music.