Disc 2 does kind of have a bait and switch once Cloud leaves the party. When Tifa first wakes up in Junon and Barret and her are just hanging out with Shinra I initially thought it was gonna be one of those awkward team ups of people that have every reason to hate each other; but Meteor is just bigger than that. The game ditches the concept almost immediately but it would have been cool.
I do like the idea that the whole huge materia thing was just Cid being a giant asshole screaming "but that's MY rocket!".
I always read it as the British comedy thing where an obviously unconvincing burly dude in drag is taken for a stunning women by everyone but a few key characters, but you make a convincing arguments. Unfortunately Square Enix's style also makes any male character that is supposed to be attractive look incredibly feminine. Just something you have to learn to live with when enjoying weeb media as a non weeb. Still wish he had a more round face like in the original art instead of a very triangular shape you almost only ever see in women.
The greatest mystery of that sequence though is why the quality of Cloud's crossdressing also affects Corneo's opinion about whether Aeris or Tifa is hotter. IIRC if you do the bare minimum he chooses Tifa, but if you hit a middling trap score he goes for Aeris.
We probably are overthinking it in general. FF7 did some damn good stuff for video game narratives but it still was full of weird wonky vidya game logic. Or logic that just only applies to Japanese culture. Like why the fuck did they let Red XIII think his father was a worthless coward for decades instead of just telling him "Hey he was actually a hero. Just y'know, keep away from the spooky ghost tunnel."
For older games (or more abstract games), I try to take a scene/event as an entire object to be representative of the intent of the creators rather than the literal "This is exactly what occured". I'll sperg a bit on my take with Don.
Don Corneo runs a famous whorehouse in a poor area with lots of weirdos. The Honey Bee Inn is definitely not a straight-only joint; the weird possible-rape cloud goes through to get the sexy underwear or whatever from all the beefy men shows that sexual perversion is both normal and expected in the area. It makes sense that if a district is going to largely be known for sexual services that there will be some diversity in tastes.
Cloud gussies himself up but if he doesn't do a convincing enough job, Don isn't into the obvious man-in-a-dress schtick, but he's not offended by it because his business is sex and sometimes sex is weird. If you don't get all the necessary gear, Cloud isn't a trap, he's just a transvestite. The details of completing your trap-transformation aren't so important, but the actual interactions you have are telling:
- get the fanciest dress by selecting the right options. You're given no hints ahead of time, you just have to know what will be the most appealing to the Don.
- get the most convincing wig from local crossdessing gym perverts who challenge you to a feat of physical prowess. They know you're trying to trap someone and mock you for your loss by giving you a shitty wig (i always found this to be one of the funniest jokes in the whole game)
- get the diamond tiara by helping out a weirdo who lounges around complaining about other locals
- get the sexy perfume by giving someone with severe diarhea medication. I don't really get this one other than japanese propensity for poop jokes
- get the lingerie/bikini bottoms and makeup help by getting into the whorehouse and possibly being gangraped
Overall, I found this sequence to be demonstrating the pettiness and perverted nature of the whole Wall Market. This is important for Aeris' early characterization as it sets her far apart from the other native denizens of lower-sector Midgar inhabitants as well as Tifa who willingly went in alone to get intel for Avalanche. Don's choice doesn't just reflect his tastes and Cloud's pretiness, but also represents whether or not the player really understands Midgar itself. This is also the only freeroaming you get in Midgar and is the only sequence that isn't focused on Shinra; it's meant to setup the characterization of Aeris, Cloud and Tifa's eventual love "triangle".
From what I've seen of the remake, they are holding true to the intent behind the scenes, but I do hope they don't reduce the weirdness at all. In the original Aeris comes off as almost
gleeful that cloud was getting pretty to trick the Don and enjoys herself all throughout the sequence. I really wonder if they'll keep the disturbing parts of the Honey Bee Inn.