This is a problem I've been having with PC Marathon 2, whenever I reach Ex Cathedra (after the Garrison chapter art) there's what seems to be a 60% chance that this error comes up and the game crashes:
I usually run it in compatibility mode for Win98, though I've found Win95 compat mode does this too. (The laptop I'm running this on is Win 8.0)
I'd rather play this version over AlephOne or XBLA as they give me headaches whereas this version doesn't, and I *think* this version is faster to play. No loading screens, many levels were tweaked, as a matter of fact I don't think anyone has documented all the changes yet... hmm...
The error has a chance to happen when going straight to the level from level select as well. In the occasions where it doesn't pop up, none of the other level-starts up to 7K Feet Under (as far as I've really tested so far) ever error like this. Currently installing Win95 C in VirtualBox.
By "gives headaches" are you referring to frustration with the setup process or something visual? If visual, the XBLA version runs at 60fps, while all other known Marathon games run at 30fps. Perhaps you're sensitive to high framerates and the Win95 version is performing poorly, around 15-20fps?
If the headache is setup related, I can't say A1 is structured very differently to the Win95 engine in my experience, you load mods and stuff the same way (arguably easier than before with plugin packages). Only major difference is that A1 seems to not be as portable, choosing to use the "appdata" section of Windows to store its config files.
I seem to get pretty fast load times when playing with the software renderer. Though the 8-bit color mode has unfortunately been removed, if the low color depth look was important to you.
It is not failing in the normal Marathon game code from what I can see. This code is specific to the Windows version I think. Are you sure that the version you're using is okay? Maybe try re-downloading from another source just to eliminate the possibility of corrupted files?