Two new features of System 7 are 32-bit addressing and the faster 68040 Processor Cache. Older software may not be. If you then can't recreate the System error, the problem may have been caused by software that is incompatible with 32-bit addressing. Choose the latter. If you then can't recreate the System erdror, the problem may have been caused by software that is incompatible with the faster cache option.
Memory errors can be harder to pin down than other kinds of errors, because they seem more random.
That means you have a total of eight added Extensions. You can rule out the greatest number of variables and the most likely cause of a System error by troubleshooting your Extensions first. If the problem persists after you've turned these off, then you know that your Extensions are not causing the System error to happen. You can then let go of the Shift key. Then, restart your Macintosh.