THE SOLUTION: enter "n0cut5" as a code in your extras screen. This will allow you skip cut scenes AND it does NOT count against the achievement for completing the story level here. I just confirmed.it. after entering the code in the level, hit X during the cut scene to bring up "Skip Y" for new cut scenes (like the one that crashes the game) as well as old. Then hit Y! BOOM, no more frozen cut scene!
This will not solve other freeze glitches that do not relate to cut scenes, but after trying all other solutions, this worked perfectly the first time! Hope this helps others that can't finagle the options menu to allow them to beat the level. I tried about 7 times before I put the code in (I did not want to miss out on the achievement) but all the options being off, clear cache, etc did not solve the problem. The code did.