Alright So I figured out...
If you download the newest Demaster version, It does not contain all of the files needed that are included in the old Demaster version. You need Demaster Version 1.3.3 - Install that first while doing the initial file installs, But then after you get all of the textures / mods installed... The new Demaster Version 1.3.5 has the single new DLL that fixes the desert prison crash / hang up part. You just take the new Demaster.DLL and put in in the base FF8 Folder after everything is installed and you should be good.
In Short
When installing you need to...
Install Demaster Version 1.3.3 FIRST (has all the files)
Then Download Demaster Version 1.3.5(single DLL FILE that goes in main FF directory)
This fixes desert prison crash.
Hope this helps, sorry am new here and new to modding. Don't know if anyone answered this before, but i saw someone asking and didnt see the fix myself.