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That's an interesting scenario. I've wondered about it myself.

Even before the Dreamcast was a confirmed failure, the new Sega of Japan CEO had decided it would be their last hurrah in the hardware business. (This announcement came as a punch in the gut to Sega of America, who were pushing the machine like their lives depended on it.) By most accounts I've heard, Sega was already in the red from the failures of the Sega CD, 32x, and the Saturn in America, and they needed to sell a LOT of units just to break even on the Dreamcast itself. I forget what that ideal number was, but at 10.6 million sold they were well short of it. It felt very much like the end of an era. Along with the GameCube, the Dreamcast was one of the last pure gaming machines, because aside from a few extras like a CD player and modem, that was all it did and it did it well.

But with that aside, if Sega was still in the console market I think it would be a much more interesting scene. The Sonic series would be better; Sega always did a better job on him for their own machines. It's possible that Sega would dominate the online gaming market on consoles, seeing as they were the first ones to do it with the Dreamcast and established a tentative user base with SegaNet. And in general, I think there would be more creative games out there. Sega and its closest developers specialized in traditional genres like 2D shooters, sports, and racing, but they also mixed in a bunch of wacky titles no one else would have come up with like Seaman and Samba de Amigo. When Sega lost its presence in the hardware business, it no longer had its own outlet for all of these ideas, and I think that was a rough break for gaming in general.