It is reported that X1 doesn't start checking until a 1 UP is dropped. Once copy-protection mode is enabled, each penalty triggers independently.
While most hurt you, one is very interesting. When one of your shots is reflected, you instantly beat the stage and obtain the power.
It's reported that you can beat the game in this state, though a casual player would have a hard time. It also allows route skips, such as never obtaining the Dash Boots.
Video showing various penalties and how they are triggered. I was able to repo (accidentally) while casually playing US 1.0 on Bizhawk 2.9 with Snes9x core. I managed to skip 7 of 8 stages, and was not reset to the intro stage.
These level skips therefore seem to be legitimate options for speedrunners, if you're willing to navigate Sigma's fortress at a disadvantage: potentially having random button presses, disappearing powerups, damage while wallclimbing, and more. But skipping 15 minutes worth of stages is very likely worth the harder difficulty.
I was able to reproduce some of the other effects.
- Items despawn when hitting ground. This effect disappeared shortly after I got the boots (about 20 minutes of gameplay). It could be something like "the next 128 item drops" are effected.
- End level on reflected shot: This also stopped at the same time that items could touch the ground again.
- Finishing a level doesn't count as completion: avoidable. Be careful when skipping the "gain weapon" animation. You must wait until this frame, or you won't get credit
- Reset to Highway - Don't attack while dashing. If you do, then next time you would go back to level select, you will lose your armor and have to go back to the intro stage. I saw a forum post that mentioned this was the trigger, and I verified it.
With all this information together, it is now possible to avoid the worst punishments, while abusing the level skip effect. I look forward to this unlocking new pathing and records.