Was it like that originally or it is an emulation bug?

If i press up i can't move to right or left anymore which cause a lot of unintentional deaths, also when you are crouch you can not change direction to attack you have to release it first which is awful.

This is not an emulator error. Pressing a diagonal will give a neutral input resulting in no movement. While holding down it is impossible to change directions before standing again.

As Teleo says, this game was made as a 4-way input game, and it does not accept diagonals. Change your arcade stick or controller to 4-way and it should be easier to play.