To try and help out with what that error message means... here's my take on it.
It sounds like the normal Classic.app runs as root, regardless of who launches it. I'd never thought about it before, but this makes sense to me (since it needs to be able to affect any file it wants to). When you copied privilges down the tree, you probably took away that permission. (What utility did you use? the info box?)
Usually, it looks like there are only three permissions, read/write/execute. There are actually more things you can specify. For an executable, you can set the setuid bit - which allows for the program to run as the person who owns the file rather than the one who ran it. This allows for things to run as root.
Just for curiosity, try typing this command and look at the results (I've pasted everything from my command line below). (NOTE: everything from the 'ls -la' to the '/MacOS/' is all on one line, it may wrap in this post.)
[localhost:~] ebaur% ls -la /System/Library/CoreServices/Classic\ Startup.app/Contents/MacOS/
total 240
drwxr-xr-x 3 root wheel 58 Oct 19 20:24 .
drwxr-xr-x 7 root wheel 194 Oct 7 15:39 ..
-rwxr-xr-x 1 root wheel 119720 Oct 19 20:23 Classic Startup
[localhost:~] ebaur%
If that mess off to the left doesn't look exactly like mine, I would guess that's where the problem lies. If that IS the case, I can post back and let you know how to fix that little bit.
On that same note, though... if you can, it might be better to just re-install, since there are sure to be a lot of little things like this that are different from what they *should* be in the system. Some of those issues may take a long time to see and may not be as easy to troubleshoot or fix.