The Z80 is almost certainly there (sound would be rather lacking otherwise) - what's not there is SMS/M3 mode, which is what most Genesis copiers and the Power Base Converter depend on. There's reported to be at least one Genesis game that doesn't work on it: Gargoyles (for more or less the same reason that it doesn't run on most emulators, I'm told). The incompatibility with 32X is probably due to missing control signals on the cartridge slot, but these aren't likely to affect normal games (apart from, perhaps, Phantasy Star 4 and Beyond Oasis / The Story of Thor, which depend on a rarely-used feature of the cartridge slot).
As for the territory lockout patch for Sonic 3, I'll hopefully dig in and see if I can find it tomorrow. If I don't mention in after a few days, feel free to bug me about it via email.
I don't think it'd be possible to remove the z80 from the genesis architecture and still keep most games running properly. Quite a few games poll the z80 every now and then and if they don't get a response they'll just hang waiting for it.
If Virtua Racing doesn't work, it's probably due to missing or altered signals on the cart slot; the chunk of DRAM and coprocessor on the cart almost certainly have more to do with any compatibility issues than some unspecified "special" use of the Z80.
The rather glaring problem with this text is that it seems to be based on a perception that the Z80 is some archaic relic of past legacies untouched by all but the most privilieged Genesis developers, when in fact it's at the very core of the Genesis sound system and interfaces quite a bit with the rest of the system. If the Z80 was missing, it would be more than a few "special" games that didn't work.
It is likely that the Genesis 3 doesn't have a "Z80 chip" as such - there's no sense in putting something like that on its own chip if system-level integration is feasible. This does not mean that there is no Z80 any more than your PC not having a "serial port chip" means that it lacks serial ports.
The Genesis 3 is a Genesis-on-a-chip console. All the old seperate components (main ones being the 68k, z80 and vdp) are a part of the main chip. That's why it's so small and why some of the features are missing that would make it a full genesis of sorts. Just like the SCD slot some of the cart pins (the rarely used ones) were not connected to save on input pins on the chip. If both were included, the chip would have another 50-60 pins on it and that would remove any significant advantage it had over seperate components.
The main reason for the incompatabilites is probably due to the fact that the gen-on-chip design is based off of the original chips but most likely includes a equivalent implementation of the original chips. As such less frequently used feature may not function the same or at all.
The exact same thing applies to the NES-on-chip that alot of those hk consoles are based on. What used to be alot of seperate processors are now in one single chip.
I can't say for sure but the nomad and megajoy (the portable airline version of the genesis) might use the gen-on-a-chip concept too.