It's not that the games were bad, they just weren't that good. While the nostalga bug has definately caught me once or twice, I never have understood why such a mediocre franchise has such a cult following. There is a reason sega lost the console war guys. 
Actually in the SNES/Genesis days, Sega at one point held more market share than Nintendo. The reason the lost the console wars because of 32X, Sega CD and Sega Saturn. When it was JUST the Genesis, they were rocking it pretty hard. Even the Dreamcast was great, it just suffered from 'Too little, too late'.
I think you may be off a lil on this.
The Genesis was released before the SNES, and at that time when it was NES v Genesis v 7800 Pro System, the Genesis KILLED them both, and a year or two later the SNES came out and it didn't take long for Nintendo to regain their lost market share. You're right that the 32X and the SegaCD were some of the first nails in the Sega Coffin, but it wasn't just the SNES they were trying to compete with. Also it may be noteworthy if you look at the release dates of everything the 32X may have been successful if it wasn't for the young and upstart
SONY PLAYSTATION, which was released at the same time in Japan.
By the time the 32X was released Sega had already lost the console wars, perhaps they just didn't know it.
Also, about the DreamCast, it would have been more successful if it wasn't for the head of Sega of America saying that the Sega Saturn was a
"STILL BORN" when it was released. This lack of confidence led to third-party developers not wanting to work with Sega anymore, the "if you don't believe in your product why should I" mentality sat in and when the DreamCast came out, which is on PAR if not BETTER than the PS2, nobody wanted to develop for it.
In Japan the DreamCast had a much longer life than it did in North America or Europe.
In many ways Sega's internal power struggles also severely damaged the public image of the company. If a country's government looks like it may be overthrown within the few months that country's currency value (compared to the world) will drop sharply and may never recover. The same applies to corporations and is what happened to the Sega Corporation.