My take on what happens in the film, and I may be mistaken.
I think in the past, at the Engineer base, there may have been a biohazard contamination. Most of those there had burst heads if you remember and I imagine that was what was happening to them. Somewhere along the way, their bioweapon had shown mutation characteristics when exposed to certain elements. As it was, it made them decompose rapidly (I don't believe the original scene was set on Earth...nothing said as much, but I may be wrong), mutated it would undergo a few phases in different animals until it reached a xenomorph form.
The xenomorph was not originally the purpose of the poison but more likely something that resulted when the chemicals went to pot. The bit that goes "I think we altered the atmosphere in the room" is what got me thinking of this, especially as that was the moment when the pots started leaking the black goo. Coupled with the fact that the unaltered poison made the doctor sick, but the poison in his body made him impregnate the woman with an ugly alien face hugger (which grew to full size without any nutrients...always something that bothered me with the Hulk in general and here as well), gives me more reason to believe that the main characteristic of that weapon was how unbelievably unstable it was and thus uncontrollable. A killer flu virus if you will.
However, despite the fact that it wasn't the intended purpose, they discovered that it was a possibility to happen, which led to the murals. At the time they saw them running I don't believe there were xenomorphs after them as much as that they had a contamination on their hands, which led to the mass of bodies with exploded heads.
As well, the difference between the doctor and the geologist exposed to the poison are the last pillar on which I hold this idea. The doctor dies horribly from a drop...the geologist is mutated after falling with his face in the black good, zombified if you will.
Going forward, I do see some reason to the theory that the ship in Alien 1 may be one in which the lady had crashed after having something burst out of her...but I doubt it very much, it would resemble the Alien 3 plot too much.
However, I believe that the alien born out of the Engineer was a queen in fact, especially as it resembled a queen more in face rather than a drone, species characteristics and all. As such, it would lay eggs and eventually die off due to starvation...or wander off in search of prey of any kind.
I believe Earth was pretty much a testing ground for the weapon, not something created for any other purpose. Before they would implement it wide scale - other species, maybe? -, they would attempt it on a controlled population in a different system, based on their own genealogy. As such, why they wanted to destroy us and why the Engineer was hostile would make a lot of sense: we are test subjects and should have no more value in their eyes than most test samples have in ours: useful but to be destroyed when it poses a danger.
Sure, there are some things that don't tie up as well as they probably should, but I loved the film nonetheless. Idiots have always been part of the Alien universe, so it's not that far o a stretch to assume that these were from the same genetic pool.
Still, why would you want to touch an alien life form that may spit out god knows what acid venom.