Ok, so I looked into this a lot over the past week or so along with r0bd0g, RingRush, and abahbob. Basically we think it was either hardware error (cartridge tilting, failure to reset a certain variable, etc.) or cheated/faked. Lots of the details in the persons' story don't line up with what actually happened (he said he was never in Spiral Mountain, but then he said he was; claimed he reset during a cutscene then changed it to during the gameover cutscene then said maybe he didn't reset; when the console crashed it took him a very long time to reset the console -- enough to remove a Gameshark cheating device). With the L to Levitate code it would have been as simple as holding L (which he claimed to be doing lol) and then letting go when you were high enough in MMM to take enough fall damage to kill yourself. There are dozens of videos showing exactly this on YouTube.
I believe this is what happened.
Does this mean BiT doesn't exist w/o cheats or hardware malfunction? No -- I have a solid lead on finding it in Rusty Bucket Bay's intro demo. However, I don't think what occurred to the person the other day was a glitch that can be replicated.
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In other news, I found a new way to clip in Banjo-Kazooie:
http://www.youtube.com/watch?v=Hsbo_H5U7ZA
It's probably possible in other places and might lead to a 765 note door skip.