1. No, as you say you need an iso mounter embedded in the softmod / BIOS
2. No, Krayzie doesn't have the iso mounter built into the softmod
3. No, they are actually less reliable because of the need for an embedded iso mounter.
All but a very small handful of games will run when extracted to the hard drive, so if you are having problems then either there's a problem with your mod, or you are doing something wrong. Resorting to ISO files isn't the right solution.
You could try clearing the cache (E:\Cache\) and delete the contents of the X, Y and Z partitions. That solves most problems with games not loading.
If that doesn't work, and since you don't say which version of SID you are using, or which of the installation options you selected, it is almost impossible to offer more concrete guidance. You could use HeXEn to install the Krayzie 1.1.1 softmod, then at least you'd be starting from a known baseline.