Sega loves killing off their great game franchises or isolating them in Japan only.

It would be awesome if Sega would make a Sonic 5 ( or something like that), which borrows gameplay elemnts from the masterpiece that is Sonic 3 & Knuckles!

If I had to guess, I'd say they're afraid of Sonic becoming just a nostalgia property...which it has, basically.

Every Sonic game from '06 onward has done one of two things: appeal to the longtime fans (Generations, Sonic 4, Sonic '06, Lost World), or try to rope in a new audience with radically retooled gameplay (Sonic Boom, Secret Rings, Sonic Unleashed, etc.) It screams of trying to keep a handle on their more loyal fanbase while also trying to reinvent Sonic for a new generation, albeit unsuccessfully because they're trying both at the same time.

There will keep being Sonic games as long as they sell. And they will keep selling.

Well, I didn't like any of the games you listed enough to buy.  Except Generations, but only because it was marked down and I decided to bite.  Sonic 4, episode 1 or 2 were both simply wrong.  They didn't look, feel, or play anything like the classic games.  Not even generations' act 1 levels did that.  You can even play the emulated Sonic 1 in generations, and understand why.  It's obvious when you start playing.

They need to have fans continue the classic sonic game series, in my opinion.  That's how we got Sonic CD re-released.  That was a fan recreation of the original, and sega commissioned them to re-make the entire game.  Same guys are working on Sonic 3 & knuckles, although it hasn't been picked up by sega yet.  But, when you see stuff like that, and Sonic XG, and numerous other projects, maybe that's what they should do.  Release Sonic XG as "Sonic & Knuckles 2 (as it was originally called anyway)" and comission them to make a new game, and call that "Sonic the Hedgehog 5"

Meanwhile, Sega can keep going on with it's eperiments.  Maybe they'll find something that works some day.  In most cases, even though the games aren't that good, they do make minor improvements.

The fools at SEGA didn't even finish Sonic 4 properly! (Where is Episode III?...)

They probably  thought that nobody would want a Sonic 4 Episode 3..

I'm not suggesting they were good (I haven't even played them all), but they were clearly designed to appeal to longtime fans. Generations referenced just about ever previous sonic game, Sonic 4 was a decades-late sequel to a classic game, Sonic '06 was a 15th anniversary title, and Lost World draws a lot of inspiration from past Sonic Games.

The problem is they seem to be trying to rope in new fans with some games and old fans with others, and it's keeping them from staying consistent.

I guess that makes sense. But, they can do what they want. Just don't try to do both with the same game. If it's good, AND it appeals to the older fans, they will get new fans.