An improvement
I couldn't help but lose interest during some moments, however. Squall took far too long to summon Locke, a quick flashy effect that takes a few seconds was all that was required, and there's not anything else going on while we're watching those two blobs float around. Also, the magical effects in general are kind of weak. It's nice that you're making your own, but Blizzaga was nothing more than a light blue blob that made Biggs (or Wedge?) float away. It would've been more exciting had the attack incured damage instead, and seemed more painful to the victim.
It wouldn't hurt to proof read your dialogue, either. During the conversation between Locke and Setzer, Setzer actually tells Locke not to tell him everything if he didn't want to. Seconds later, he's thinking that Locke is holding something back, which conflicts with his earlier statement of understanding.
And I agree that the KH Cloud looked out of place, but it was almost worth it for the battle animations. Which leads me to the meat of this movie, the battle against Shadow. Here is where you seem to really shine, as the battle was intense, filled with sound effects and had some very smooth attacks. Shadow vanishing and materialising elsewhere was quite nice, as was Cyan's defense against his shuriken attacks. If all your battles were that interesting all the time, you'd be getting blue scores, possibly even Pick of the Days. Certainly this one is an improvement on the animation, so I predict you'll have some truly excellent movies later on in the series. Keep it up.