For the record, the ROM in a pokemon cartridge isn't programmable. It's something physical. A software error cannot possibly ever damage them nor delete the "files" because there are no files-per se. Sure, there are memory regions and whatnot, but it's all a chip designed and limited to stay the way it is made.
Surely enough, cartridge damage (which isn't the same as bit rot, but can easilly happen from neglecting the cartridge for years) can mess up either the contacts or something else that may mess up when it is read. But even in that case, it's not a glitch that spreads like a computer virus or whatever stories are told over the internet.
Back to topic... what I don't understand is why isn't at least EVERY instance of the Cinnabar east coast "macrotile" glitched, if it really is because of the tiles having the wrong flags associated with them. As far as I know, Gen. I didn't assign behaviour flags separately from tiles (unlike Gen. III). Everytime that tile was used it'd always give grass encounters, and glitched ones in areas with no grass encounters defined. (Which basically are Cinnabar and route 20)
As for it happening in Seafoam Islands, the coast tiles are actually in Route 20. They are too in the right side of Seafoam, but you can't access them from Cinnabar without crossing the caves. I'm not sure if caves define grass pokemon or not for the encounters though. If they do, you'd see the 1F (or lower with an Escape Rope) pokemon in there, otherwise the glitch'd carry over.
But that'd raise the question of why doesn't it work in Viridian which has the same coast tiles.