I have the game.iso and disc2.iso in the same folder. So it looks like this:
games/GGSEA4/game.iso
games/GGSEA4/disc2.iso
Also I just checked the MD5 for both disc 1 and disc 2 and they both match the md5 on redump.org.
I just tried to load my save file while disc 2 was launched to see if the disc swap worked from to disc 2 to disc 1 but it still give me that same screen. It tells me to take out disc 2 and insert disc 1 instead.
Do you have multi-memory card enabled?