I do agree that the 32X shouldn't have came out. They should have just focused on the Saturn. The only way the 32X would make sense would be if Sega delayed the Saturn for a launch in 1996.
But I think this would be the best alternate history:
1988(?) - Sega when designing the MegaDrive/Genesis adds traces on the expansion port to allow for CRAM expansion.
1991 - Sega designs the Sega CD as it was but now makes it also expand CRAM to match the color capabilities of the SNES and possibly PC-Engine. Possibly also gives the system more RAM.
1992-1994 - With this set up the Genesis is pretty much as it was to the consumer, the Sega CD however is an even better upgrade now since it pretty much brings the Genesis up to par with if not better than the SNES. So there's some good potential here for the system. Marketing wise Sega while still pushing some FMV games, also pushes for other genres like RPGs, Shooters, Arcade Ports, as well as some platformers. With this kind of marketing push the Sega CD could possibly have been the system to own for RPGs and Arcade games. Sega also later releases a cheaper combo unit that eventually replaces the Genesis in stores.
1994 - Since the color was already addressed with the Sega CD, there's not much demand for something like the 32X. If anything the 32X is instead released as an expansion cartridge for the Sega CD that includes RAM and the SVP chip.
November 1995 - Sega launches the Saturn globally. With the extra year to develop games and iron out hardware bugs the Saturn now has a bit more streamlined design, its still similar to what we got but the transparency issues are fixed, lighting support is possibly improved, and it's easier to develop for thanks to better dev kits. Due to the possible success of the Genesis/Sega CD, Sega launches the Saturn with a card that has the Genesis and Sega CD hardware on it to allow for backwards compatibility. Many 32X projects are either released on the Sega CD or Saturn or both. Saturn would then have a successful launch due to more polished software, a better launch line up, and backwards compatibility.