You have to take into consideration that in the end, it's about brand loyalism and marketing. One big reason the Saturn fared so well in Japan, (the PS was booming there too) was the Segata Sanshiro marketing and lots of niché titles.
By the time Dreamcast was out it was far too late for the brand itself. Shoichiro Irimajiri couldn't compete with the next big gaming Idol: Ken Kutaragi and his exotic hardware and wild promises.
SEGA also had a history of friction and misunderstandings between the eastern and western divisions.Most japanese fans seemed to perceive that the company was weak and basically destroyed by incompetent westerner management and shareholders.
Nintendo and Sony were the safe brand then for a lot of big and small factors, Nintendo and Sony were (at the time) pure japanese companies (whereas SEGA, Service Games, was a US company until Hayao Nakayama was put in charge of SOJ in 1979).
Bernie Stolar seemed to have a great deal of responsibility, he greatly eroded the company's image, starting with SEGA of America by sending confusing messages, by not allowing most RPG's to have a western release, (that was the coup de grace by Sony, having lots of RPG's in the west), he then proceeded to further dig in the wound by publicly declaring the Saturn dead
two years before the Dreamcast was even out. It's a shame it all crumbled down, because SEGA had a great team known as SEGA technical institute in the US.
They were sending a confusing message, being unrespectful to developers and the userbase, and frankly I+D was out of control, the CDX, the NOMAD, the never released Neptune (basically a Genesis+SCD+32X= Almost a Saturn with an absurdly constrained bus and other bottlenecks). Hence why pachinko tycoons and shady private japanese businessmen said "***k it" and took over (or so they say) and sorta tried to rescue the company's image in Japan.
PD: The Dreamcast used ~1.2Gb GD-ROM as optical storage
<message edited by Ingram on Thursday, December 06, 2012 7:03 PM>