Hey, I know it's been a few weeks but I happened to be lurking around and I just came across this. I've also been quite curious for a while to know if it works okay in this emulator, so I just spent some time setting it up and trying it for you now, and I'm glad to say it works really well.
There's a red Sonic (player 2) that constantly keeps spawning when you move about the level, since I programmed it so that he appears when a controller is plugged into port 2, and disappears when there isn't. I don't really know the emulator config very well, but if you can disable port 2 at all, then he should go away.
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Anyways, if you want to get it working, I just used Daemon Tools and ImgBurn as explained on
this page to make a BIN/CUE out of the provided ISO/WAV/CUE files. Then you can just swap it out in the romfs like any other Saturn game. Hope that helps!