It's more like Sega just sucks apart from their arcade division. Virtua Fighter 5, Outrun 2 SP, Virtua Tennis 3, and Afterburner Climax all kick ass. It's most of their home stuff that sucks, Sonic in particular, which apart from Sonic Rush last year has just become absolute shit. They still have bright spots with home games like Monkeyball (although that started in arcades) and Phantasy Star Universe (kinda). I played a bit of Yakuza and wasn't really impressed.
They need to get back to more arcade-style games for the home system (good ones, not crap like Sega Rally 2006), and do some good ports. VF5 and VT3 already look to be perfect, so that's all good, but where's Afterburner? How about Quest Of D? It's an arcade dungeon crawler that looks pretty cool. Why don't they try these games at home?