This is why I love games like FF8 so much, where a very significant amount of the dialog and cut scenes really had nothing to do with the overarching events of the game.
Right, because the storyline was absolutely nebulous at best and something between incoherent and unfinished at its worst. And I'M well aware that YOU'RE well aware of this because you've said as much.
See, what FFVIII essentially is is a Bildungsroman in videogame form and it just completely bollockses it.
Sure, it's also a character study of Squall, but you can't make a game, or a novel, or really anything larger than an essay, out of something as broad as a completely abstract "character study." Ergo an underlying storyline is necessary to illustrate the character's personality as it is in various points within the focus period of the characters development, and to facilitate the changes that happen to the character as their life progresses.
FFVIII's story does this, but only in the most marginal of senses, primarily by introducing Rinoa as a change element, constantly putting her in danger to show Squall that he cares about her, and very little else.
Events external to a person influence them. FFVIII acknowledges this, but only in a very shallow sense, and mostly only on the first disc.
Additionally, it's hard to see Squall as realistic. His behavior is, perhaps, expected of a 14 or 15 year old, but not someone older than that. And if a 17 year old WAS acting like that, I seriously doubt that anyone would have much interest in getting them to come out of their shell. Or... any interest in dealing with them at all, really.
Even without that it's hard to see him as a well rounded character. I cannot, unfortunately, remember the exact quote, and the source is somewhat apocryphal at best, but I remember reading that Samuel R. Delaney, at one point, said that a realistic character will at some point do something selfish, something selfless and... two other things along similar lines. The problem with Squall in this sense is that he goes from someone completely closed off and fairly selfish to someone that's... mostly the complete opposite.
I also took a great deal of issue with how his thought processes were presented. Or rather, that they weren't... anything BUT presented. We see WHAT Squall is thinking, sure, but there's always a great deal of disconnect between what he's thinking and *why*. As you said -- there's a great deal of dialogue extraneous to the events at hand, but what kind of person is so utterly detached from what is happening around them that they can still be influenced by it? Then again, as I said, Squall's really not influenced by the events happening around him, outside of the very small change element aspect of the plot, and well... read up a few paragraphs.
Even his growth and development is quite small-minded and uninteresting, because, essentially, he simply switches from one mindset to another without any real reflection on why, or the inherit advantages and disadvantages to these worldviews, or whether there's anything ELSE out there. One static mindset to another static mindset. Compare it to Candide or Siddhartha, where the titular characters change their worldview several times and are constantly growing. Squall's more like a stock character from a Fonvizin play -- one of the immature and intellectually bereft ones that are primarily there just as an example of the kind of person people should strive NOT to be.