That's because the game is expecting Shift-JIS—you need to hack it into expecting ASCII.
I figured as much.
I just don't have any idea where to even begin doing something like that. My background in assembly is limited to microcontrollers, nothing as complex as the PSX. Identifying the the routine that shifts those two bytes around isn't something I know how to do, let alone actually modifying it to only expect 1 byte in ascii instead of 2 in sjis.
I've read that document describing the PSX processor, can run the disassembler in an emulator, and pick out the op-codes easily enough (with a reference at my side) - but I don't have that intuitive understanding of PSX assembly, not by any means.
Suffice to say, I have a lot of learning to do.