Copying and pasting from a youtube comment by MrWhitman
"This glitch seems to occur when there is supposed to be something that comes on screen but doesn't. Pretty much, the game goes into a loop trying to bring in the sprites (in this case the ghosts) but can't do so since the character was on screen when they should have come in but didn't. As for fixing it, there are always unforeseen consequences to changing the code so they probably just put in a message and left it due to deadlines."
(he recreates the glitch here:
https://www.youtube.com/watch?v=2SoH-Kf_Gyk which is where I got the comment)
If I had to guess, it has something to do with the chief's throwing daggers in the thieves guild.
Worth noting that QFG2 has a reference to this bug - any time the fragmentation bug
would occur, they actually fixed it, and have a cute little message about the hero squishing the bug underneath his foot. I remember that this actually came up at the end of a TAS after all the inputs - and the TASer couldn't add another input afterwards without desynching all the previous inputs.