The Japanese person who developed the NEOGEO CDZ emulator for the PSP is now working on a CPS1 emulator! No releases yet. Here's his progress: More information (in Japanese), and some pictures here (bottom of the page).
Firstly there's the Security Center which is a pain in the ass. But since it's a service you can turn it off. The firewall prevents all incoming connections except for what you allow. It doesn't prevent outgoing though. It works by allowing any communication from the executables you allow to contact the outside world. The evil thing with sp2 is that it only allows 10 simultaneous TCP streams at one time. This can impact multiple torrents. There's a simple patch to fix it though.
I've never used a save state. How n00bish is that! From what I can see, the save state gets unzipped and put into the "sta" folder. You will probably have to create the "sta" folder.