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I've seen discussion of this error before. The cut-scenes are stored as videos (like the PS2 version). When the videos cannot be played, the game falls back to rendering the cut-scenes in real-time (like the Game Cube version), except that the models for the cut-scenes are missing. So you get a background with no characters on screen.
There's likely a codec problem on your system that's preventing the videos from being played.
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