But I have to ask ... how in the world did you figure this out?
Well, debugging the startup code is actually quite comfortable using my VM debugger (https://lively-web.org/users/bert/squeak.html). It shows the call stack, current frame, and byte code, and lets you set a break point, and single-step through the code. Someone should make a similar UI for the Squeak VM Simulator :)
So what I did is pause the VM when the startup didn't finish, look up the call stack to see where things went wrong, set a break point for that method, run again, and then single-step to where it goes wrong.
At least I think that's what I did, because right now I can't get it to malfunction even when I disable the flag ... where exactly did it break for you?
The image runs and browsers work normally. But open a workspace and evaluate "2 + 2" and you will see the error.
Dave