This doesn't make sense. Both the PSX and PS2 "easily challenged Nintendo" without any help from Sega, so why would Sega's involvement have made any difference? And how can you compare the Dreamcast to the PSX or N64 when the Dreamcast came out several years later?
Don't they still have an arcade business (or pachinko, at least), considering they've merged with Sammy? See for instance http://en.wikipedia.org/wiki/Joypolis .