Yahoo! That fixed it right off the bat. Now I can get through the entire torture scene and continue the game.
Thanks for all your advice, I appreciate the effort to help me fix the problem.
Special thanks to Shonumi for the golden suggestion.
It looks like a cheatcode (or something along those lines?) was triggering the game's "haha, you lose" thing.
I don't think it was anything to do with the cheat, I never used the infinite health cheat until after I discovered the problem in a attempt to fix it. The problem was there before the cheat was used.
To be honest I don't know what it fixed, but it fixed something because it's working now.