I managed to fix this issue. I am detailing the fix here for anyone who encounters this problem later:
Even though I had previously tried to clear CMOS prior to launching this PC, I seem to have done it wrong. I simply removed the coin cell battery and disconnected the power for 1 minutes, and it did give me a date/time error and cmos battery error (or IBM POST equivalent codes) at boot. Apparently, this is not enough and there is a capacitor on the board that holds a charge that can retain CMOS information for quite a while.
So apparently the correct way to reset the CMOS (and Boot password coincidentally) is to remove the coin cell battery, unplug power AND short the two pads below the battery holder for 10 seconds.
Once I did that, upon next boot, I got a lot of POST errors (due to CMOS settings missing) but once I ran the BIOS Configuration Utility, the Memory was displayed correctly as 16MB.
My PS/1 is working perfectly now 😀