Sephiroth's soul still exists. That's what Kadaj, Loz and Yazoo were. When Sephiroth's body was destroyed at the end of FFVII, his soul managed to escape becoming part of the Lifestream but it split into those 3. Effectivel, they all are 1/3 Sephiroth's spirit. Which means, I suppose, to totally kill Sephiroth you would need to kill all three. However, The Soul Reaver will devour them just the same. The weapon can harm both physically and spiritually. It attacks your body, your spirit...you're boned in both ways as it is powerful enough to harm the Elder God who exists in two dimensions entirely.
Face it. Sephiroth has a soul. It can be stolen. you can not 'replace" your soul with Jenova cells. You can corrupt it with Jenova cells true, but again, not replace. If he's hit with the Soul Reaver, which he will be, then he's dead. Kain holds him in TK chains or simply teleports and runs him through. His soul is devoured and his physical and spiritual essence lost for all of time.
Kain has every advantage. Speed, strength, two millennia of battle experience and more magic than Seph can dream off. Plus immortality. Kain beats Sephiroth in every way. What a joke fight.