Home console and handheld markets would probably look somewhat different since around 2000, although it's hard to say how exactly. PS2 would be in a weaker position, possibly with substantial impact even today. There's a chance there could've been more innovation due to not being able to rely on backwards compatibility for having a larger library in the early years of a generation. The handheld market would probably be facing a lot of pressure from smartphones just like it is right now, but perhaps Nintendo would have been less dominant due to not having the advantage of backwards compatibility.
Of course I don't remember whether hardware 'emulation' was used for backwards compatibility, but if it was, much of what I said was moot, because as far as I know, hardware emulation is more or less just putting the original hardware alongside the new hardware, so it couldn't really be impossible. At least with software emulation it doesn't seem like an unreasonable thought experiment to consider a scenario where emulation is computationally infeasible.
Besides that, we'd probably be in largely the same situation as we're currently in, which is old games getting 'remastered' every now and then with minimal improvements.
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