The key bit occurs a short while after the argument with Jess and Hauser. Once they storm out of Gustav's manor, you have to spend the night. This is the series of events in which you have the option of getting one of the bad endings by choosing certain options with Nanami. Go upstairs and try to enter Riou's room, and Nanami will chat briefly then depart. At this point, you can either go straight to bed, be awakened by Leknaat, and then proceed to Nanami's room; or you can simply go straight to Nanami's room and skip the Leknaat events. None of this has any effect on the glitch. It is only mentioned to make it very easy to identify the right point in the script.
The following morning, Nanami wakes you, and on talking to Gustav someone will run in to announce that Jess is foolishly ordering troops to take on Neclord. Everyone but Klaus will depart, Nanami will join you, and you get control back in order to go investigate. Exit the manor and now is when the bug can be triggered. All you need to do is enter any building other than the manor. The church will work, as will any shop (you can access the armorer and the blacksmith), and probably the homes past them and nearer the mine workers. After you exit your chosen building the glitch comes into effect. Proceed to the entrance where Jess is watching the troops deploy, and a conversation between Hauser and Ridley will ensue, followed by Jess and Hauser leaving. Finally, Klaus arrives and offers strategic advice. After this, you are automatically deposited back into Gustav's manor, and you should be standing right in front of Viktor under normal circumstances. However, with the glitch working, Viktor will not be there, and none of the exits from the room will work properly, leaving you unable to continue the game.
The bug appears to be that entering any building causes a different scenario module to load, and the exits back to the town are not redefined at this point to take you back to the proper module. When you exit the manor, module VG18 is loaded, and contains all the proper scripting and so forth for the events at hand. When you enter a shop, you are returned to the VG08 module, which has all the event scripts for the troop deployment, but apparently has a bad setup for events after that. The shops' exits will leave you in the VG08 module. If you enter the church, module VG09 loads, and the exits dump you into VG08. If you suspect you have triggered the glitch, it is fixable. All you have to do is return to the manor and exit back to town. This will cause VG18 to load again. However, once you witness the troops moving out, and are returned to the manor automatically, it is too late to do anything.
Konami did this sort of thing in several places. There is a limit of just over 300 kB on module files, so if the scripting and so on approached the limit, it would typically be copied and a new module created with a fair bit of duplicate data. Sometimes the files are almost indistinguishable, and one can fairly well stand-in for the other, and that iss the case here. VG08 can handle everything up to the point when you are returned to the manor. Even if the issue appeared in QA, they might have assumed it was their imagination, or a random, unpredictable failure that was fixed by a recompile.
It appears that this bug was introduced during localization. The VG18 file does not exist in the Japanese version, but the VG08 file is close to the limit, so it is likely that the extra space required for English text forced them to split up the module.