Save right before it prompts you to change discs if you haven't already. Now quit the emulator, mount the first disc using Daemon Tools (Google for it if you don't have it already, it's an application used to, among other things, make your operating system 'think' you have one or more additional CDrom drives), restart ePSXe, configure the CDrom plugin to read from the (virtual) drive you just mounted the ISO on and load that save state. Now when it asks you to change discs, press ESC and unmount disc 1 and mount disc 2 on that same drive. Chose Change Disc but CDRom this time. That should do it.
About configuring the CDrom plugin: the internal one should do fine, otherwise download some plugins from here.
Off-topic: I liked Lunar I a lot better than its sequel.