To the creators of this project, I applaud you for all of your hard work. It looks like it was on par with the RPG classic, at least graphically. However, what did you think was going to happen? Was Square-Enix going to let someone rip content from a ROM and then just release it? Mods are a largely American phenomenon and one that is almost entirely the domain of the PC. Should (Japanese) game developers be more hands-off with projects like this? That's the question we've all been asking ever since our favorite games (Starfox, Super Mario 64, etc.) were released without a proper sequel.
As a fan I would have loved to see the project reach completion and play it for myself. But you have to live in the real world and in the real world, there are copyrights, patents and trademarks. These things are not just here to give the finger to the fans; without them there wouldn't be much of the content that fans flock to. Square-Enix may have been a little heavy-handed, some would say cruel given the groups' not-for-profit claim, but Square-Enix is well within its rights.
I could be callous and say, "Fans should stick to writing fan fiction" but I won't. This was obviously a labor of love and its sad that it had to end the way it did.