I know that Win32s requires that the EXE have a RELOC section, so it must be built with relocation enabled.
I hope you don't need to go all the way to /NODEFAULTLIB though, that kind of configuration is a big headache to build on.
Is there a .lib file for "msvcrt.dll" that will work with /NODEFAULTLIB? If so, I wonder if there is a Win32s compatible binary for that.