Awesome, thanks for testing.
Looks like I was almost right. Based on those results, it looks like the penalty doesn't go away completely, it just gets capped at 5. I just checked and this is indeed still enough to fix Gensan 2, so looks like this is definitely the solution. I'll make new versions of tests 6 and 7 later today that should actually work on console.
In hindsight this should have been obvious, the normal penalty for non zero sprites goes 5,4,3,2,1,0,0,0. So, it makes sense that this one should go 0,1,2,3,4,5,5,5 and not 0,1,2,3,4,5,6,7 that I currently have implemented. That's what I get for extrapolating beyond the available data without thinking it through. At least the fix is super easy.
Hopefully this can get fixed in Gambatte too, it's one of the only really obvious flaws it has. This is not some rare edge case so it probably impacts other games too.
EDIT: Here are revised tests for scx6 and scx7 that i believe should work on console.
https://www.dropbox.com/s/l9hfqvfn39vqmyc/intr_2_mode0_timing_sprites_scx6_nops.gb?dl=0
https://www.dropbox.com/s/4yvtv675szu9vpu/intr_2_mode0_timing_sprites_scx7_nops.gb?dl=0
Those stray lines and Dixie's messed up sprite are a result of GBC variations.
If you look here you can see the details of one sound hardware change that breaks a game in older model GBCs, look in obscure behaviour:
https://gbdev.gg8.se/wiki/articles/Gameboy_sound_hardware
There are many variations in GBC from GB, and many variations amongst different models and from GBA, even just the fact that the GBC BIOS takes less time to run dramatically changes RNG in games that don't reset the timer (ex pokemon) all other things being equal.