Well it seems you are still 1 step ahead of me.
I got the old version (and a newer) to start on win xp and win7 x64 but when i try to expand cd, it crashes.
Did you add some dll to the folder of the exe?? Can you please zip them and send them to me??
By the way the newer versions seem to have lost the PSone games and concentrate on RE.
A little thing I noticed is that you are still working with the whole image, you usually don't do that.
Get isobuster or cdmage to extract the single files.
The list.cd you can let it alone for the moment, it seems a collection of 8 pointer tables but i not sure yet for what.
Main.cd contains all assimilation texts, save screens, game over, reload etc... texts and mostly already decompressed.
If you search the whole image for Musa, you will find a mix of decompressed and compressed text but if you search for <Musashi>, you will find mostly uncompressed text (yes, there are parts that are decompressed already so you could study the format there but you have to play the game till there ;p)
If you searched the image for a text and you want to know in what file it is, take the offset in the image, convert it to decimal, divide it by 2352 and check (with cdmage or any program that show you the LBA of the files) where it is.
Let's make the example of your text above, the offset in the image is x1EE1B10 = 32381712 > divide by 2352 = 13767.73....
If we check the table CDmage give us for the LBA, we have SC01.CD starting at 6161 and ST01.STR starting at 15965 so the text you posted above is inside the file SC01.CD (xEDB6A7 to be exact).
The very first sentence on the game (<Steward Ribson> There both be no effect!!) is in the same archive (SC01.CD) at xF0909E meaning that the text inside the files is not in the right order just to make things more fun
I can not really help you with the LZSS program because i don't know wich one you are using.
What i told you before about compression is correct but there is more and i belive this kind of compression is called huffman.
Not yet tested but take a look at your hex screen, just before your maked part (4 bytes before) there is an FF, let's start from there.
FF = the next 8 bytes are uncompressed so 01 18 <Musas (write like this because more easy to follow)
the next byte is 7F, (not confirmed) it's looking like it's in yF format meaning that the next y bytes are uncompressed so hi> 0A 19 14 17
F4 00 it's probably one of those *go back and copy* but i didn't figured out the format yet. Because the next is a FF, i believe this will copy only 1 byte.
here the next FF so 25 01 Shoot 04
here there is another of those go back and copy and i believe that the last byte it write here will be a FF so i believe that could be it copy and write the above 0A 19 14 17 F4 00 FF
because the last byte writte in a FF, the next will be uncompressed
and so on.
If you can send me some of those splitted files you got from that program (especially those first texts in the game) i can check out the decompression tools).
Did you check that they are not already decompressed??