However, if SEGA had contracted LM to make a true next-gen GPU for a year-2000 console, it would've blown away the PowerVR2DC accelerator in Dreamcast. As well as not having the problems PowerVR had compared to Model 3. (Every Model 3 game has AA and run at 60fps, can't say the same about the DC).
A custom next-gen Real3D GPU could easily have been more powerful than NAOMI 2, Xbox and GameCube, nevermind the PS2.
The reason Model 3 appeared powerful was because the hardware was huge, using TWO PRO-1000 chips, costing arcade vendors tens of thousands of dollars to purchase on some of the titles. It is also not fair to expect ports of Model 3 games ported over to Dreamcast to be picture perfect, as the 3D hardware was entirely different, and the games had to be reworked from the ground up due to how PowerVR2 renders graphics versus TWO PRO-1000 chips.
Also to note, games running on Model 3 were displayed at a res of 496x384. Running at that low a resolution, games are obviously going to run at a fast framerate on that hardware configuration. Dreamcast/Naomi displayed games at a higher resolution, and PowerVR2 supported more graphics features then PRO-1000 did, and was stackable for multi gpu ability at a far more affordable price. Anything made specifically for the PowerVR2 chipset handled quite well, and most of the A+ titles on Dreamcast and Naomi 1&2/Atomiswave look quite a better then anything produce on the thousands of dollars more expensive Model 3 hardware. Power VR2 was a more powerful feature rich GPU in general, and it was consumer grade (Dreamcast and Neon 250 pc graphics card), and smoked everything LM/REAL3D had produced for Sega or PC on the consumer side. This is why Sega went with PowerVR2 and stuck with it for so long until moving to Triforce, Chihiro, Lindbergh etc.
You are totally forgetting the fact that the horribly weak, totally inferior i740 (designed during the same time as PowerVR2 was) was the best Real3D could muster for a custom consumer related GPU. They were totally incompetent when it came to affordable consumer grade GPU technology, and they were amazingly far behind 3DFX, Nvidia, ATI, VideoLogic, etc due to that. LM/REAL3D was not in the right mindset to produce consumer grade technology, for game systems or otherwise, and Sega, along with Intel and everyone else knew this. All they knew how to design and manufacture well was massive workhorse technology used for expensive simulators and other applications the typical consumer would never use, where the price was not the question of the day, where no expense was spared.
As is, it is even hard to say whether their later work was even their own. They were involved in patent lawsuits as it was by the time they got snuffed, and they were starting to have to compete with companies like Quantum3D in the simulation market, and Quantum3D was curb stomping them with consumer grade 3DFX chipsets in the AAlchemy systems, etc. To be perfectly blunt, spending time speculating on what could have been/fantasy projects concerning Real3D is time unwisely wasted. What they did bring to the table that had real merit, that was the best they had to offer, in the end that was totally out of reach for the normal guys wallet, let alone 5 normal guys combining their wallets. And as a 3D company in general, they were not even 2nd or 3rd in their class by the time of their demise. As far as I am concerned, good riddance.

Nuff said.