If it's not a damaged file, E1005 means that you're going over your computer limits. The nexus setting is for speeding up the level loading only. When 350 MB nexus is consumed, you should also set up the nexus to 350 MB.

sys_memory indicates the amount of virtual memory consumed by your game. Textures, entities and levels all consume virtual memory. When they are active, i.e. visible or accessed by script, they also consume physical memory.

The memory of your PC is running out when either virtual or physical memory is completely consumed and can not be allocated anymore. If you see E1005, your PC is in an unstable state because no memory is left. E1005 is often followed by a PC crash because some other program, or DirectX itself crashes when it gets no memory.

If your PC is equipped with 2 GB physical memory, you have maybe less than 800 MB left for your game. When all your 900 MB game content consumes physical memory at the same time and can't be swapped to hard disk, you'll get E1005.

Conclusion: Your game probably consumes too much memory for a normal PC today. Try reducing texture and entity sizes. Use DDS. The F11 panel should tell you what the main memory consumption is caused from.