Hey there. I'm from netmech.org, and I've found the answers to some of your issues.
1. If the game is constantly crashing in the sim, it may be because you're using the Commando mech. Try selling it and purchasing a Jenner (armor the head!)
2. My two Mercs versions both have the MW2.exe for Mercs at 463kb, and dated November 20th. One is the retail 1.05 version, and the other is the 3DFX interactive edition. I'm guessing they streamlined the file somehow (maybe upx compressed as you said), when they re-released the game. According to Kanajana, Mercs was first released on September 30th, while the 1.05 patch download was made available on October 31st. I guess the
3. Dosbox is unnecessary to run the game at full capacity. Just use mouse2kv at 1024 by 1030, VDMSound (via the dosdrv commandline), and Sapucdex if you want the music tracks to loop properly.
4. As with all of the MW2 games, the later disks have progressively less and less music tracks on them. The 1.00 and 1.05 disks should be the same, while the 3D accelerated versions chop out more and more of them as the size grows.
5. I have a theory that all dos installs from any of the 3D Enhanced CDs will not work properly. I know for a fact that the 3DFX interactive edition's dos install will not work properly. This appears to be due to the larger PRJ containing the enhanced graphics being incompatible.
For more info, check the netmech.org FAQ (which I'll be updating soon, I hope)