The Playstation Classic can run fanmade Dreamcast emulators. I'd call that effectively trivial especially when it's a team with access to Sega's source code and intellectual property doing it.
Games were also relatively big so then you have the added cost of storage for those 40 or so games you would not include.
C'mon dude. A 64GB eMMC in bulk quantities costs less than three dollars a piece.
I don't know who would want a subpar experience on a mini console when they can just run an emulator a decent 4 years old computer/laptop and have a much better experience...or just buy the console if it matters that much to them.
Why would I buy a NES Mini, or a SNES Mini when I could use this perfectly good PC?
However, they sold like hotcakes. Many people just want the thing to work, and enjoy the novelty factor.