Square-Enix, like most companies, only cares about one thing: MONEY.
Wii has the highest potential for profits (Cheaper development, not difficult to program for, and a much higher userbase).
And they honestly don't care about graphics. Final Fantasy VII was an ugly game. Sure, the FMV was nice, but that was only there to cover horrendous load times that plagued the PS1 and its 2x CD drive. An N64 game would look far better, but there was one problem- cartridges. A cartridge cost way more than a disc, and Nintendo was maximizing their profits. So they jumped ship to Sony for the cheap discs and greater control, and brought us Final Fantasy VII- a good game that looked like legos, thus popularizing RPGs.