I tested the new version on MEGA65's C64 Core with REU and a second SID, and it works flawlessly. I noticed that when I swapped the joystick port (to Port 1), the SPACE key no longer works. So I would suggest keeping it Port 2-only, as with the vast majority of C64 games. I don’t own a controller with two buttons.
Yes, it's quite a different experience when playing without save states. So far, I've only made it as far as the boss in Stage 3. One suggestion regarding the game balance: I think it's fine to lose the weapon power-ups when you lose a life, but it would be nice if the speed upgrade only went down by one level. However, I'll leave it up to you whether you want to implement that.