Legally Square Enix can issue this order, but does it hold up in a court of law? That depeneds upon what exactly you were trying to do with this project.

If you were planning on remaking all the graphics and musical scores from scratch, then you have two options. Either
A) you can claim that it is fan art/content which you have no intention of marketing for profit or donation (and even if you did, there's not a whole lot they could do about it...assuming we are talking purely about scratch remakes of the graphical and audio content of this game).
B) you can claim that this content has nothing to do with Chrono Trigger and is, in fact, simply a mod for the Unreal Tournament 2003 Engine.

Somehow I get the impression that you didn't just want to rework those two elements, so there are other issues to address. Specifically, anything that is text based cannot be copied and distributed, as this would break copyrights which are in place for one undred years or until the company goes under, whichever comes second. Copyrights are scary things to deal with, but luckily for you there is a simple workaround. With all computer software, legal owners of a copy of a product are allowed to make one copy for backup purposes, should they fail to comply, they are required to terminate use of the product and destroy all their copies, including the original. You, the makers of a project which currently has no name (because it should be renamed so as not to infringe on Square Enix's copyrights), are not bound by the legal obligations which are specific to others. In other words, assuming that you do not directly copy any of Chrono Trigger's content (and if you do, you destroy all your copies), the legal contract into which you were bound when you purchased and played S. E.'s game cannot lead them to press charges.

So what's the solution? You design a mod for UT 2003, from scratch, specifically for people who have legally purchased and still retain copies of Chrono Trigger for the SNES. You design the graphics and audio on your own, from scratch. You call your mod Chrogo Trinner, or some such thing. You script all the appropriate gameplay actions into your mod. And here's the tricky part, build in an option that players of the mod can enable which is only meant for viewing the text-based story elements within Chrono Trigger ROMS that people have legally published on their own.

If these criteria are met, the project is completely, legally possible. Not even the users would be at risk of getting sued because no illegal copies need to be made, no modifications are made to the ROM, nothing gets copied (except for the style), and most importantly, you're not selling anything.

Additionally I'd like to state that part of the glor of the internet is that if you play your cards right you maintain levels of privacy that even big, scary companies like Square Enix can get through. You can become code and nothing more in their eyes.

I hope you at least consider the options I present. And should you start up a "Chrogo Trinner," I'd be very willing to help out in the area of graphics.

I only regret not finding this site earlier.

I suggested changing the name months ago. The truth is, Square-Enix isn't a bunch of idiots and simply changing the name won't be enough, because S-E can claim it is a "derivative work" and still have the right to shut it down if it looks sufficiently similar to Chrono Trigger in terms of character design, location design, music composition, and battle engine design. Dystopian Rhetoric explained it better than I can, though...go read the first few pages of the Bad News thread to see his posts about it.

Theoretically, it would be well within Square-Enix's rights to confiscate and destroy ALL fan works involving Chrono Trigger (including fanart and fanfiction) because they're all "derivative works". But S-E chooses not to do this, simply because fanfiction/fanart is too far widespread to be stopped very easily.

But fan games...that's different. There aren't nearly as many Chrono Trigger fan games being made as there is fanfiction and fanart, because fan games require a lot more time and resources to make, which therefore usually makes them more famous and "in the limelight". So since Square-Enix isn't running all over the place trying to quell fanart and fanfiction, they can concentrate their full legal might on the fan game makers and prevent them from forming a precedent that will make it okay for anyone to create a game with CT stuff.

Really, S-E is just trying to protect their intellectual property, and I'm not so sure I wouldn't do the same thing if I were in their shoes...because if you let a bunch of fans make a game with Chrono Trigger characters and settings without your permission, then what's to stop rival companies like Nintendo, Sega and Microsoft from doing the same thing? Even if Square-Enix were to take them to court over it, they could simply point at the successful Chrono Trigger fan game and say, "But you let them do it."

wow that was a great performance by stoney and deram_scholzara. but i agree with stoney in some way i dont know what im saying but you know so just what is this going to help everybody with?