GMMan, I don't quite understand what you mean by the Steam version being the problem. I bought the game through Steam a long time ago, and it works just fine.
For some reason, I'm having the same problem, but with the Games for Windows Live version:http://2dboy.com/forum/index.php/topic,2371.0.html
Does the 1.3 patch fix the "Fatal Error!" problem?
Do you have the ThreatFire turned on? Try disabling it and see what happens. That goes for 'the lion' as well...