Why does breaking a bunch of S monitors destroy the game?

Because S monitors are just a debug feature.

If you use debug mode to place a lot of Super monitors in one place, and then destroy them all at the same time, things go south pretty quick.

So what exactly is going on? When Sonic turns into Hyper Sonic, the game loads up an extra object to handle the large stars that start flying around him. This object is always loaded to the same RAM address, so there's no chance there'll ever be too many stars flying around.

However, here's the first thing the object does when it's loaded:

Obj_HyperSonic_Stars:
    lea (ArtKosM_HyperSonicStars).l,a1
    move.w  #$F380,d2
    jsr     (Queue_Kos_Module).l
    ...

If that looks familiar, that's because it's a PLC request. This is what the object is saying: "Hey, I know you're busy right now, but as soon as you have some time, I need you to decompress this art file to this address in VRAM. I'll go ahead and add this to your queue so you won't forget."

Every time you pop open a Super monitor, the object starts over, and adds another request to the queue. And another. And another. Until the queue runs over and spills into other bits of RAM, corrupting the game into a hard crash.

This bug never manifests itself during normal play because usually, you can't turn Hyper if you're already Hyper. They could have added an extra check for the sake of debug mode, but they didn't.

Because S monitors are just a debug feature.