hes a character in the game, you just dont get to use him
you do fight him, once at the beginning of the game (good luck beating him at that level.), and later in tournaments. (you get a lionheart keyblade for beating him and cloud. )
he'll be in KHII, dont worry
heres the ff characters ive seen:
cid (ffvii)
cloud
squall (prefers to be called "leon")
yuffie
aerith
sephiroth (unlockable boss who is the topic of this thread.)
tidus (appear as sora's friends on the destiny islands with selphie and wakka)
selphie
wakka
alot of moogles...
and in KHII:
all the above, plus...
vivi(ffix)
setzer(ffvi)
seifer, fujin, and raijin(ffviii)
tifa (ffvii)
yuna, riku, and paine (ffx-2)(theyll be looking like kids
)
and maybe more i dont know of.