Nah, I'd say X is the point where it started to take a nosedive. 9 is one of the better final fantasies period, and 7 definitely wasn't terrible at all. 2/3/5 were mediocre (and why they weren't released in the US for years after they were made) and while 4/6 are clearly the best in the series, in my opinion, 7 wasn't really the turning point. Definitely FFX, even if it had arguably one of the better combat systems in the games. Until then you had some very uniform FF features across the games, it was only at 10 and beyond that you started getting this silly streamlining deal that really separated it from the older FFs.
Edit: On character differences...
Really, until you get to the end of the game, the characters have very specific strengths and weaknesses. It's only when you are at the endgame that the differences go away. Barret/Cid/Cloud/Tifa have pretty shitty magic damage and healing ability for most of the game, while Red XIII/Vincent/Aeris(th)/Cait Sith excel at those. Yuffie and Tifa are very quick characters, while Cait Sith/Barret are very slow. If you were having Aeris melee, you were doing it wrong. Just like having Barret cast healing spells was generally doing it wrong.
Once you are at the end of the game though, you can max out everyone's stats and they all homogenize, with the only differences being appearance/limit break/long range.