There's a reason why I've always considered this game to be one of, if not the, hardest games to emulate on Xbox. I couldn't fix it on Cxbx (and I tried for years), Microsoft couldn't do it, and even JayFox himself had quite a bit of trouble with it. In order for this game to work, JayFox had to add a series of hacks. I don't remember what he did, but getting it this far was quite a feat. From what I remember, he tells me that the bug you see is an issue with floating point precision for vertex skinned meshes. I ran into a similar issue on Cxbx, but it was much more severe as everything was greatly distorted.
The hacks used to get this far are not in his main branch, so I cannot replicate it. Just wanting to share a bit of news that never seemed to get the mention it deserved.