You also have to account that Sega lost a lot of their credibility and gained a reputation of unreliability. You see in the early 90's sega was basically having an internal civil war (Sega of Japan versus Sega of America),spread their resources too thin, and pissed some retailers off.

1. The screwed up producing the Sega Saturn and the 32x at the same time. Serious lack of communication and cooperation here
"Joe Miller (head of Project Mars, from SoA) decided that no one would actually want a simply upgraded Genesis, and ordered that the 32x be built as an add-on instead. By the time Miller realized he was wrong, and build a few prototypes of Project Neptune, a combo Genesis and 32x, the Saturn was already shipping. Project Mars and Project Neptune were complete and utter failures: Project Saturn crushed them."
http://adterrasperaspera.com/blog/2006/01/03/the-downfall-of-sega-part-1

2. They alienated retailers by allowing an early launch of the Sega Saturn at some retailers.
"In addition, the retailers who were not included in the early launch (most notably Wal-Mart and KB Toys) felt betrayed, with some retaliating by supporting Sega's rivals. This resulted in Sega having difficulties with these distributors for the Saturn (and also for its successor, the Dreamcast). For example, Sega's actions angered KB Toys so much that they refused to release the Saturn at all, and actually went as far as having some of their retailers remove anything Sega-related in their stores to provide more retail space for the Saturn's competition instead."
source:
https://en.wikipedia.org/wiki/Sega_Saturn#North_America

There is a lot more to the story then the Saturn being complicated to program for. Sega hosed themselves. Oh yeah and this:

"Sony gave the Software Development Kit (SDK) to all third party developers, but Sega only used it internally withholding it from all outsiders...
"But that isn’t what put the final nail in Saturn’s coffin: The then CEO of Sega of America decided to not support the Saturn, and refuse to port games here. I mean, not just unpopular ones, but any. This violated Sega’s promise to the few fans who were left that they’d bring many games here to America."
source: http://adterrasperaspera.com/blog/2006/01/03/the-downfall-of-sega-part-2/

Yeah, I wasn't going to get as in-depth with it as you did, but kudos to you for doing it. You're also absolutely correct. Over-diversification in their product lines was RIDICULOUS. At one point, they had on market at the same time: Genesis, 32X/Sega CD, Saturn, Game Gear, the Nomad AND Dreamcast! But again, especially in the case of 32X, total lack of 3rd party support played a pretty big role as well. 32X's "killer app" was Virtua Fighter, and that's about it. I remember in the gaming rags back then, the biggest complaint about Sega was "IS THERE GOING TO BE A 32X VERSION? WHERE ARE THE 32X GAMES?" Then you also had the Sega Channel. Too many pies, not enough fingers and Sega lost their shirts in the console market.

Also, at the time, KB Toys played a major role in console sales, because there was maybe EB Games, Babbages maybe, and some of the bigger toy stores that were the biggest purveyors of games/consoles and equipment. Heck, I bought my N64 from KB Toys, along with most of the games for it as well, because it was pretty much the only store offering console stuff, once our local mom 'n' pop brick and mortar went belly up.

It all provided a perfect storm that put Sega in a rather nasty position that ultimately shoved them straight out of the hardware market.

The difference is that the console being deprived is the industry leader.

Not really. The FMV sequences are heavily compressed on the Xbox 360. Here's some proof:

http://www.eurogamer.net/articles/digitalfoundry-final-fantasy-xiii-face-off

"The rumours are true. Final Fantasy XIII on Xbox 360 isn't anywhere near as impressive as it is on PlayStation 3. The real kicker is that it's a lot worse than it should have been."

"The sad truth is that Square Enix's solution for transitioning the 32GB of CG video to DVD is unfortunately rather poor. A "one size fits all" encoding technique appears to have been used to compress the assets. Now, assuming the company also did this for PS3, this strategy can work fairly well: throw enough bandwidth at any image and the picture quality will hold up. Bearing in mind that FFXIII occupies more space for its videos than many commercial Blu-ray movies, this is perhaps not surprising."

"Unfortunately, when any particular scene ramps up the motion, the encoding solution Square has employed collapses horribly. Detail disappears in a sea of macroblocking and banding, while the PS3 version remains pretty close to pristine thanks to the incredible amount of bandwidth (and thus video information) available.

While the shots here look pretty poor, seeing the whole picture really amplifies the effect still further. Markedly so in fact, and we've got a comparison gallery to prove it."

Here's a screenshot that shows how shitty the compressed videos look on the Xbox 360: http://images.eurogamer.net/articles//a/9/9/4/0/4/1/BadCG_001.jpg.jpg

And the problem persists on FFXIII-2.

http://www.eurogamer.net/articles/digitalfoundry-final-fantasy-13-2-face-off

"As far as image quality is concerned, FMVs on the 360 still stick out like a sore thumb due to some extreme levels of compression, although this is made more tolerable by virtue of their infrequency. However, it's the edge in performance that the PS3 offers - usually ahead by 5FPS at any one time during town stages and cut-scenes - that makes it the version to vouch for."

As you can see, i'm not making this stuff up.

It still doesn't make sense in my opinion. With subscribers paying around U$50 each year they could have kept it going longer, especially considering that there was a very large community of active players on Halo 2.

Sony never charged for online services and kept servers running longer. I could still play SOCOM 3 online a few months ago.

And when you do subscribe to PSN, you get a loads of great content. On Live you get nothing. I subscribe both Xbox Live and PS+, and there is no question about which one offers the best value for money. I get tons of free games each month for free with my PS+ account for both my PS3 and my PSVita. Most games released for free are older, but there are a few games that were available for subscribers on launch day (like Stacking, Awesomenauts and Jet Set Radio for PSVita). Last month, for example, we got SF4 Super Arcade Edition, Bioshock 2 and Retro CIty Rampage for free. If you buy these games alone you would spend more than the price for 1 year of PS+ subscription.

I'm not saying that PSN is better than Xbox Live. It isn't. Xbox Live is the best online platform as a service, but PS+ offers the best value for your money. And online play is free.

The 130ish people still playing Halo 2 on an original xbox in it's final week each were sent an xbox360 and a copy of Halo 3.

I have both PSN+ and Xbox Gold and... I prefer the xbox service. Sure I get (mostly old i mean come on BS2 is like 3 quid in many bricks and mortar stores) games free on PSN+ but I don't get a bunch of in game features I use on the xbox.

When looking up the progress of Creatures 4 (*cough* get Creatures Exodus here on GOG *cough) I saw that the guys at Fishing Cactus have an OUYA dev box:
http://www.flickr.com/photos/fishingcactus/8364682997/in/pool-creatures4
:-)

PS:
I want those cute plastic norns!