It's not a matter of the Saturn not being able to do it. It was a matter of Capcom not being able to do it...
I don't go too much with the excuse of RE "1.5" being scrapped mid-development. I find it hard to belive they rewrote the graphics engine for RE 2.
At most, the original level design was being hold back by the limitations (model and polygon count) of their Saturn build, and they scrapped it to re-do the game as they intended.
See, the differences between both RE1 versions are very clear, specially when it comes to lighting. Capcom's 3D skills were very limited at the time, and getting the same performance and quality out form the Saturn was much more demanding.