I'm having the same problem as Adam above. Disc 1 went fine, but disc 2 always freezes after the dream sequence. You can use sm1th's undub ver or PAL CD2 to bypass the freeze. Load your save, sleep & watch the cutscene. Save & reload kogami undub to continue. UPDATE: Just cleared Shenmue fr...

This will turn off the shadows.
Options->PowerVR->Modifier Volumes-> 'OFF'

Shadows will still work in most cases, but the ones that are causing weird bugs need to be turned off. Unless you can deal with it on xD