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Transmeta's Crusoe microprocessor is a full, system-level implementation of the x86 architecture, comprising a native VLIW microprocessor with a software layer, the Code Morphing Software (CMS), that combines an interpreter, dynamic binary translator, optimizer, and run-time system. In its general structure, CMS resembles other binary translation systems described in the literature, but it is unique in several respects. The wide range of PC workloads that CMS must handle gracefully in real-life operation, plus the need for full system-level x86 compatibility, expose several issues that have received little or no attention in previous literature, such as exceptions and interrupts, I/O, DMA, and self-modifying code. In this paper we discuss some of the challenges raised by these issues, and present the techniques developed in Crusoe and CMS to meet those challenges. The key to these solutions is the Crusoe paradigm of aggressive speculation, recovery to a consistent x86 state using unique hardware commit-and-rollback support, and adaptive retranslation when exceptions occur too often to be handled efficiently by interpretation.