Sonic was killed by it's own fanboy-ism....
The game worked lovley in a 2D environment beceause that's what it was designed for. Sega wanted to show off the speed of their new system so they designed a 2d platforming game that was all about speed.
But once the 3D worlds took over there really wasn't much room for Sonic. Speed was no longer an issue for consoles and everybody started focusing on graphics. Sonic was never a graphic heavy game... the characters where kind of bland and cartoony, and the Sonic world was empty and full of grassy plains and empty streets. It's really hard to turn that into something that can visually compete with games that are designed to show off more on a graphical aspect (IE: Gears of War). No matter how good a Sonic game looks, it'll always look like cartoony garbage. That's not to say that the graphics are bad, but they'll just never have that "Next-Gen Console Shine" to them that we all want.
Speed was the only real aspect of the game. But you can't do speed in 3D... In a 3D environment there is no "perfect camera position" and there's always going to be that offscreen object that haults you dead in your tracks. Areas where Sonic hits a spring have become little more then in-game cutscenes and areas where you're left to run on your own are left empty and boring to avoid the sudden stops. Sonic could only really work in a 3D environment if it took on the same form as Space Harrior or the 3D Battles of World Runner. But lets be realistic... that's been done and just wouldn't make for that great of a Next-Gen game.
To make up for it, Sonic has had to add in new characters, features, or gameplay mechanics. But none of them work simply because nobody wants to play a Sonic game where you control some previously unknown character that moves boxes around with his mind.
The developers of Sonic have gotten so desperate they've done everything imaginable to the title in order to keep it alive, yet none of it ever works. Sonic now has 17 friends, a new enemy, diffrent worlds to travel in, human to interact with, fighting powers, sword weilding abilities, and the ability to transform into a wolf. Yet, at the end of the day, it fails. Because the only people that want Sonic to survive (even if it means changing everything about it that made him great to begin with) are the annoying fanboys. The rest of us would rather he dissapear and go down in history as 'good memories'. Unfortinutly though, fanbodys just wont let that happen... and they should.
I was there when Sonic was new... don't ruin my generations memories of a classic game because your generation was too busy putting on it's eye-liner to come up with anything of it's own.