Villa face Palace today in the FA Cup.
O'Neill is saddened to see Palace's current predicament and is aware of the potential the club possesses from his days as a player.
He said: "There seems to be almost a (financial) case per season and there has been now for about 20 years. Somebody always seems to find themselves in trouble. This is nothing new.
"But, where it is particularly galling, is for clubs the size of Crystal Palace.
"Palace have a fantastic catchment area and I've played in that ground when they were in the big league - the old First Division. There's 40,000 people been at Selhurst Park, so they've got the wherewithal to be a really big club.
"That Croydon area is a football hotbed and I've thought that for a long time. "They are a 'proper' club so it's rather disconcerting that a club of that size should find themselves in that sort of trouble."