The stream read error is an issue with the image mod. You can solve it by opening the file in a non-Paint image app, and resave it as BMP. If you use Photoshop, make sure to select the "OS/2" option for formatting, not "Windows." A more general solution is to run a batch conversion, with an app like
Irfanview.
The idea was that huge cities clustering tons of people into small spaces tend to raise general levels of discontent. If that is the only thing you dislike about the mod, you can perhaps try the attached file, in which I set the unhappiness to 0 for metroplises.
Note that homeworlds can not riot; they stop at the Angry level.
The AI never bothers with conditions improvement plants, so the pollution does not matter (it only makes improving conditions harder, doesn't ever lower them).
The AI is configured to build as many happiness facilities as it needs (actually 1 extra) for all colony types, so the worker unhappiness scheme generally will not hurt them.