From TVTropes, regarding Sonic XTreme

Sonic X-treme is notorious for its executive meddling. First, the main game and boss levels were broken up and given to two different teams, which ended up building them into essentially two completely different games. Then, the team making the boss levels were shown a demo of the then-in production NiGHTS Into Dreams game, further inspiring the team to deviate the levels from the main game and causing Nights creator Yuji Naka to threaten to leave on grounds of plagiarism. Then, when Sega of Japan came over to check up on the progress, they loved the engine for the boss levels so much, they demanded that the game be made with it, even though the team was dangerously close to deadline and short on men due to arguments about the game's direction. It finally took the game's director coming down with pneumonia before the plug was finally pulled.

I can help with a few of those ^^

The next Sonic game was supposed to be a fully 3D game released in 1996 called Sonic Xtreme. Sega's best american studio, the Sega Technical Institute, who had in the past developed Sonic 2, 3 and Knuckles with help from Sonic Team were doing the development. It started as a 32X game, but then grew into a Saturn project.

The project bacame delayed and screwed up by many things, most notably the Japanese bosses being previewed outdated builds of the game and demanding evertyhing remade from scratch, as well as Yuji Naka ( The programmer of Sonic 1 ) being a giant asshole and threathening to quit the company when STI got permission to use the Nights Into Dreams engine, which meant they had to abandon a lot of work again. 

The end result was the game not being ready, and Sega's mangement closing down STI and switcing focus to Sonic R and a port of Sonic 3D Blast to at least have something Sonic-like on the system. So basically, Sega lost both their next-gen Sonic and their best (IMO) studio.

I have no idea if the pressure of the PS1 had any impact on the game.

Notable Saturn games are the AM2 games, like Virtua Fighter 2, that pushed the saturn and was sort-of killer apps for the system if you were an arcade fan. If there was no PS1, I can add that the Saturn fighter library would have been INSANELY strong if Tekken didn't go to the N64. VF2 being sort of the Starcraft of fighters in japan at the time, those series combined would have locked the fighter audience to Saturn.

Other notable games are the quirky games that Sonic Team were fooling around with when they could have made something that pushed momentum (Nights into Dreams, Burning Rangers) and the early third party games like Tomb Raider and Resident evil. Those series would definately have been Saturn series if there was no PS1. (Tomb Raider was originally planned as a Saturn exclusive)

Wow. That sounds like development hell. I'll be sure to read everything TVTropes has to offer on SSaturn-related stuff.

Thanks for the help!

Okay, so far I've got a basic outline for generation 5 without Sony being in the console market. It's not pretty. The Saturn and N64 sell a combined 90 to 95 million units, less than our timeline's PSone all by itself.

In retrospect, Sony entering the industry was a great thing, if only because they made less crazy decisions than Sega and Nintendo generation 5 and provided resources and advertising for big games like Gran Turismo, Ridge Racer, Namco Fighters, Twisted Metal, Crash Bandicoot, Final Fantasy, and Spyro.

Anyway, I'm thinking the Xbox becomes the new PSone in terms of making a breakthrough for Western console gaming. It had the horsepower, the price, and the killer apps. Especially since it would have been the only 6th generation console capable of playing Grand Theft Auto.

Would Microsoft have given enough of a damn to enter the market, though? They saw Sony as a threat, coming from the living room with their "Computer Entertainment System," and so made the Xbox to fight that threat on their terms (with the 360 more made as Microsoft's counterattack to try to really rule the living room of their own accord)

Marginally related, but the big "what if" i've been puzzling out (aside from one where the Chinese knowledge boom of the 1400s led to a philosophical renaissance, making China the center of democracy and the center of science and knowledge moving into modernity), is:
What if the Star Wars films had been made "in order"? E.g. the original trilogy was episode I, II, and III, and then the new trilogy was 4, 5, and 6?

This is assuming that only the general plots stay the same for both: e.g. episode I is about finding Anakin and encountering a mysterious evil of the Sith that seems to be stirring up the corrupt but otherwise peaceful alien groups in the galaxy, and that it wouldn't be the exact same thing, due to budget and technology and Lucas having less direct creative control.

A good point. In fact, that brings up another thought: would any company try to enter a market that seemed to be the sole province of Sega and Nintendo?

Some companies to note:

*Atari's Jaguar didn't actually do that badly until 1995, when competition with the Saturn and especially the PlayStation grew too tough. Could it have survived at least a little longer if the PSone never existed and the Saturn came out a few months later? It had a few early major hits like PC ports, Rayman, and Alien vs Predator.

*SNK did pretty well with the original Neo Geo, despite its niche appeal. The brand survived into the 2000's. Could the Neo Geo CD or 64 have been a sucess? Or, alternatively, could the original Neo Geo have been redesigned as an affordable home console by around 1994 or so? Popular franchises on the system would have included several fighting game franchises and Metal Slug.

*NEC's PC-FX was only released in Japan, but it was the follow-up of the popular TurboGrafx-16. It lasted from 1994 to 1998, and had dozens of games.

*Apple released the Pippin in 1995, and it was discontinued in 1997. Not exactly great, but would Apple be willing to push into the console market again afterwards?

Isn't the panic performance increase of the Saturn just a myth?

Don't foget that the 6th gen consoles would be radically different as well. A long Saturn lifespan would mean Dreamcast using more powerful tech.

Oh, and a lot of PC game companies wouldn't start migrating to consoles, so PC gaming would have more games in the alternate history as well.

It's one of those stories that's hard to pinpoint an origin to, so it may very well be a myth. Video game history is foggy before 1998 or so.

Don't worry, I've thought about that. The Dreamcast would come out at least a year later in my timeline. That said, that still puts it as early as 1999, and Sega stuck to 6 year cycles for a while. Maybe a 2000 release date for the Dreamcast? Hmm... if we abuse Moore's Law and simply double the Dreamcast's specs (God help me) it would still have a weaker CPU than the GameCube, but more GPU and RAM. The real question is whether the Dreamcast would use regular CDs like in real life or DVDs like the GameCube and PS2? Because depending on that answer, console gaming could have been held back for a generation.

Can you think of any specific franchsises, developers, or publishers that would stay on the PC? I can think of plenty of 21st century examples, but the PS1 seems to have mostly been dominated by Sony 1st party games, Japanese games, and the ocassional Western developer that seemed destined for consoles. Honestly, the chief games I'm kicking out of the console boat so far are Warzone 2100 and Medal of Honor.