What was so radically different in KS 2.04 that trashes games and other applications?
To be precise the games trash themselves.
The most common reason is that KS 2.x and later hog larger portion of the available system RAM than with KS 1.x. Another reason is that the games make assumptions about the memory layout and use memory without actually allocating it first (say for example assuming that certain address in chip memory can be used after a fresh boot).