Sega's fate was basically decided before Dreamcast, it was a magnificent last throw of the dice though.
Just made it all the harder to stomach to see them go out on such a creative high, with all their studios at the top of their game. Fringe needs a Dreamcast 2 playing Shenmue 3 in the parallel Universe.
But that was part of the game's (intended) appeal, really. This awesome slow-burn atmosphere punctuated by massive moments of electric conflict. You're meant to feel like the lost 18 year old you are.
Shenmue's great expanse of talking and investigating before even so much as an action QTE makes the action so much more rewarding, in my opinion. This is then combined with the feeling that everyone knows you - in his town, Ryo is well-known and well-liked. People are willing to help him out.
Shenmue II that safety net is gone. Nobody has heard of you, most are cruelly indifferent to you. Action happens more suddenly and often because Ryo is clashing with the environment around him. Yet as this action ramps up, the story slows down. For the longest stretch of Shenmue II, you get nowhere. It's kind of like learning you can't punch the world into the shape you want it. It's awesome in that regard.
EDIT - It's actually due to atmosphere I prefer the first game over the second. I mean, overall I think II is the better game, but I just feels more enjoyable to play. It's that "returning home" feeling about it. It also has a much superior sense of arc - by the end you feel like a chapter has been completed. Had it ended there, though immensely frustrating, tonally it might have worked. II on the otherhand covers three chapters and thus doesn't have an overly well developed sense of arc. Honestly, the final disc needed to be the start of the third game and the time spent in both Hong Kong and Kowloon expanded upon. Hong Kong especially. Despite being larger than any other environment in either Shenmue, it still felt smaller than Hong Kong had any right feeling.
Still got my Xbox copy of it sucks I couldn't the pal version in 2001 I would of kept it I bet. Shenmue was awesome for its time and one of the few DC games to sell the system so it actually could of been even worse game because the graphics where the best at its time IMO. Alot of people hated it tho lol.