In the alpha version of Ocarina of Time, this room probably served as nothing more than a test dungeon. Three or four screenshots remain depicting Link combating early Stalfos prototypes, and from the looks of these, the room is unchanged. The actors were probably lost during the transition from the old engine (which grew out of the Super Mario 64 engine) to the new engine.
Thanks to the quality tools for handling Zelda 64 data files avalible today, it is now possible to add actors to room 120. If you are interested in doing so, please have a look at cooliscool's Zelda Edit.
In an unmodified Debug ROM, Room 120 will not load properly from Map Select. Initially, the room was thought to be corrupt, as it was the only one on the map select list which refused to load properly. There were quite a few theories to try to explain its malfunction, one being that the room was the unchanged original from the alpha version (but then one would have to explain why the stalfos actors were missing). It turns out that the level's room file was missing its header, which is a vital part of the data. After a length analysis, Cendamos replaced the header with something more fitting. After recalculating the header, the room was fully working, and the final result you can see above.
Before it was completely fixed however, Cooliscool was only able to load up the collision and only some of the textures. He was able to do this before the rom was released to the public. It wasn't until much after the rom was distributed that Cendamos was able to completely fix the room, and post a savestate. If you happen own the original copy of the debug ROM with the broken version of 120, you can download the latest Zelda Editor to patch the map.
How it was fixed
Since room 120 lacked a header, it needed to be replaced. However, this was only the first step. There are various pointer in the header, which point to geometry, textures, and actors. For the room to work properly, these need to be recalculated to suit their room. Since there were no tools available for doing this at the time, Cendamos went through each pointer manually and recalculated it.