I remember seeing this video a long time ago, along with the other prototype Sonic games, including the one running on the NiGHTS engine, and the "fisheye" lens video.
The main confusion is that several demos were made by different companies within SEGA, all were rejected, but then later they were re-submitted and given a second chance (ultimately, all were scrapped again). Also, parts of one were to be used with bosses from another, but that idea went down the drain as well. Eventually (as in a few years ago), I believe X-treme became a fan project, but I think it remains unfinished.
The development of "32-bit" Sonic games is so crazy and confusing, and generally mirrors SEGA's internal bickering between the Japan and America sub-units. For me, it is one of the best and earliest examples of SEGA's incomprehensible business model.
What an interesting Sonic 1 proto.
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Doctor Fugue
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Yes the fan one, which is being lead by one of the original developer's for the game, is still unfinished, but it is still being worked on. It's called Project S, but I'm not on my comp right now so i don't have a link to the forums. If you search for Project S Sonic on google you should be able to find it. I think I might eventually apply for an art position.
