I agree with Tim that the current WR should not be considered the WR, but I'm pretty confident that I know how it happened, based on my experience with this game.
Point #1: Dragon's Lair can be set to restart from the first scene after you beat the dragon. When you do this though the score does NOT reset. It keeps counting.
Point #2: Note that the TG track only has a single rule "5 Men." It says nothing about whether or not the game can be set to loop after completion.
http://www.twingalaxies.com/game_detail.php?gameid=3619&platformid=2My take: the guy got to the end of the game, cashing in 4 guys to get the big points available in the lair, then it looped, and he just kept playing until he lost his 5th guy, which, judging by his score, happened fairly early in the second loop.
Since there is no rule against looping, the record is, technically, within the letter of the rules. I don't think there was any cheating or chicanery at work, just an ill-defined rule set, and neither the player nor the ref knew any better. Some doofus just never bothered to make it a rule that the settings had to be "1 pass". That cab was probably set to loop, so he just kept going.