1 - Sephiroth hits on Cloud. I hear he hits on EVERYONE. The way he talks isn't threatening or menacing. It's... flirtatious and sexy.
2 - The encounter voices alone. Here, let me write some out for you and you look me in the eyes and tell me you DON'T think of anything sexual:

( I guess these are audio spoilers if you haven't played the game and are a total purist about it. Nothing plot-related, though. )