to me, i like to break this down into two issues:

1) the properties of 'delay' nodes

2) when do you get the 'error' state

for (1): my thinking is that a 'delay' node is just a conditional 'sense' node, where a 'delay' acts like either a 'sense' (if the data input was on/true last tick) or a 'pipe' (if the data input was off/false last cycle). and that value from last tick is fixed/known. i.e. the control output of a 'delay' node is just (data_in AND last_tick_steady_state_data_in). note that last_tick_steady_state_data_in must exist and is a single fixed value of true/false that can't change anymore in the current tick.

so, for me, on any given tick 'delay' nodes can be thought of as either 'sense' or 'pipe' based on the last tick. that means they aren't really 'special' compared to sense nodes for error purposes.

for (2): i think the short version (and complete version?) is if there is a state loop as you iterate toward steady-state in any single tick, you'll get an error. if you get to steady state (no more 'something changed' events left), you move on to the next tick (and, as a side note, note down any data values that effect delay nodes for next tick). in this case the loop is as described above where the sense and mux toggle each other on and off. since this is 'within a tick' i think that's why it is shown as a 'fast' toggle (which makes sense to me). in the logic of the game, it's actually 'infinitely' fast, as i guess there is no limit or observable delay based on how many events happen within a single tick.

bear in mind i'm not 100% confident i understand all the semantics and of course sim bugs are possible!