I had the same problem, and this had me tearing my hair out for a few days as well. Believe it or not, I was able to fix it by using the 7502 Bios file. I guess the 1001 is too old for that game... I also remember that that particular game required gameshark codes to work on a modded PS, maybe that has something to do with it? In any case, try the 7502 BIOS and see if that helps. Btw, the game looks sweet!
Actually... It does work because i got it to work a while back. I do remember the lockup at the loading screen. It's been a while, so let me try to remember the settings for getting it to work and I'll hit you back with another message.