Very interesting video.
It appears to me that what happens here is that the game starts out on screen 1-1 on internal difficulty #1 as normal. At the first transition to a higher difficulty towards the end of 1-1, the game appears to change directly to internal difficulty #5. Then, it appears to stay on internal difficulty #5 for the rest of the game instead of resetting itself on each screen.
On 1-1, you can see that the fireballs start out moving very slowly. Then, towards the end of the screen, they change over to moving very rapidly, appearing to skip over the intermediate speeds. Also, the beginning of the screen begins with barrel release patterns that are consistent with internal difficulty #1, which results in Kong pausing after every barrel is released. At the end, it appears to have a barrel release pattern consistent with internal difficulty #5, which results in Kong pausing after every 5th barrel is released. On 2-1, barrel steerability appears to be dramatically improved, although that's always harder to quantify without a larger sample.
Interestingly, certain features remain unchanged such as the path of the first barrel on 2-1, the spring speeds on 2-2 and the prize values. However, these are all tied to the actual level number in the code and NOT to internal difficulty. The only thing that has me confused right now are the wild barrels, which SHOULD be tied to internal difficulty, but there appear to be Type 1 wild barrels on 2-1, which doesn't fit with my theory.
One fun experiment would be to speed run through 1-1 (do not grab ANY hammers), trying to get to the top before the first transition to a higher internal difficulty. Then, see if this affects what happens on 1-2 -- specifically with firefox spawn rate and the firefox speeds at the beginning of the screen. Something tells me that 1-2 would start out at internal difficulty #5 no matter what you do, but that would tell us something about how the hack was written. For example, is it just a running timer that continues even during intermissions, etc, or does it auto-set it to 5 at the end of the first screen, or could it potentially reset at the beginning of 1-2, potentially giving you around 30 seconds to play on the easy (normal) setting on 1-2?
Anyway, thanks for sharing. I find it interesting that this version appears to be rare, but not completely unique.