Also like I said, turn-based RPGs are still 'modern'. People still go out and buy them in droves and there's plenty of examples of that happening very recently. Hell, I completely forgot to mention Pokemon in my original post; that's still entirely turn-based.
Because like I said, there are also a lot of fans and modern gamers in general who want to see it with "modern" game design elements, like an action-based battle system.
I've yet to see evidence that enough people would have been disappointed by a turn based RPG staying turn based to make FFVIIr suffer greatly because of it. An expanded turn-based battle system for FFVII would both differentiate itself from mainline FF and KH and keep it in line with what the actual game was at the start. As you said, this seems to be entirely on the development team, not fan desires. Fans weren't asking for a FFVII remake with KH gameplay, they were just asking for a FFVII remake.