Revealing mistake: If you take damage and lose a wing or both, the Arwing's shadow still shows two wings.
Audio problem: When any character talks over the com, their face appears animated as they speak. All of them are depicted as talking with SUPER fast mouth movements of the jaw opening and closing the full time they speak. This is way too fast to line up with their dialogue at all, and just looks goofy.
Continuity mistake: In the mission of Sector X, you fight the boss Spyborg. For slower players, Spyborg will usually smack Slippy with its hand and send the toad's crippled Arwing hurtling towards the planet Titania. Faster players can destroy Spyborg before it can attack the cocky Slippy. If this is done, you go to Macbeth instead of Titania. However, if you chose to go to Titania anyways, the mission plays out with Slippy crashed and captured by the mission's boss. Yet he didn't get hit and crash in the previous mission.
Factual error: On the Solar level, the other Star Fox team members only take damage from heat while they are talking. Being on the Lylat System star, they would be constantly taking heat damage just like Fox.
Plot hole: If you successfully go through all the red path on the Lylat System map and reach Venom, the Cyborg Star Wolf team still appears before you can fight Andross. They talk about your previous fight with them, and show their cyborg parts from injuries of crashing when you fight them and win on the third level on the blue path. But going all red path, this is the first time you meet them. So they are injured from you, but never fought you.
Answer: There isn't really an agreed answer to this, and the game leaves it purposely ambiguous. It's entirely possible that James is just a figment of Fox's imagination. It's also possible that his spirit is guiding him or that he's secretly alive. So in truth, any answer would be pure, 100% speculation.
TedStixon