I never played Final Fantasy 7 or 8 but used to love watching my brother play them and often helped him when he and his friends got stuck. Today my brother told my about this theory and I decided to do a bit of research as it sounded intriguing.
Basically, the theory is that Squall dies at the end of disc one and the rest of the game is all just a hallucination created by his mind in death. The final fantasy. This might sound rather absurd but when you die your brain releases a large amount of DMT (a psychedelic compound). It's the same thing that makes you dream.
Here's some videos explaining it in more detail and providing some good evidence.
I think it's true and I love how subtle it is. Who ever said "it was all just a dream" is a bad ending forgot to mention it's only bad if the story makes it blatant. My appreciation (boner) for Squaresoft just got way bigger. They don't make them like this anymore...
Hopefully someone finds this interesting.
edit: Just noticed the ship in FFVIII called "Ragnarok" in Norse mythology is a series of future events and is translated in Old Norse to "Conjure fate". In Proto-Germanic it means "Final destiny of the gods". Coincidence? Probably not.