it was never good.
There's a distaste the broader culture develops around a property when they get the feeling that it has a fan-base bigger than what the quality of the thing warrant (see: twilight). If there's a franchise that has a massive, incredibly rabid fan-base but the entries in that franchise are all mediocre at best the go-to line is "that franchise should just get back to when it was good". And I'm here to spoil for you why Sonic doesn't get back to when it was good.
The problem is it was never good.
People aren't fans of Sonic bc the games were good. Most people who are fans of Sonic never played a Sonic game they liked, or even played one at all. They're fans bc of its marketing.
A 15 year old in 2009 wasn't posting OC bc the old games were good -- they'd never played the old games; they had never even seen an NES. They were posting OC bc before they had a PC with MS paint, their parents bought them coloring books & they spent their free time before they had a PC making Sonic OC on Sonic coloring books.
The games were never good to begin with tho. All of the best Sonic games of all time had exactly 1 good level each. Sega spent an obscene amount of time & energy marketing the franchise -- they even went so far as to collaborate with Michael Jackson in several ways (the character is partially based on him), but in terms of actually making the games they only put in the time & effort of making 1 good level for each game, made it the first level which everyone would play the most bc the game would kick you back to the main menu when you ran out of lives and then just shipped it.
TLDR; the games were never good, Sonic only had its fandom bc of the coloring books, there is no golden age of "Good Sonic Games" to go back to & if you've spent your whole life thinking or mis-remembering that there was you have been fooled by a marketing ploy.
its made that way on purpose, ur supposed to go thru lvl 1 really slowly, then run out of lives on level 2 & have to redo level 1 but slightly faster until you beat level 2 very slowly, then run out of lives on level 3 & repeat the process but improve on level 2 too, until ur speedrunning level 1, then speedrunning level 2. The format doesnt work with save games, & a lot of modern versions shoe-horn in save games bc theyre standard without thought of how that affects the metastructure of the game. Its a bad game on a single playthru for sure
Your analysis doesn't stand up to Sonic 3 & Knuckles, which had saves. Restarting the game when you ran out of lives was the standard in platformers at the time - it doesn't make the design good, per say, but putting it into context is important.
The game is built so that speed is something you can achieve when you start to get good at it. It's a running theme to the games that they get more fun the better you are at them, and 90% of the time when I see people whining about the game design of Sonic being bad it's because they're shitters who can't beat a single level without Game Over-ing it first.