Sega Dreamcast. All Sony had to say was "PS2 is coming next year" and everyone stopped listening to what they could get today.
Google mod chips some time they had them for the Playstation and XBox to use CDRs.
An exploit was found due to the console support for CD's with multimedia support, called MIL CDs. Initially a bootdisc was needed which you swapped with a CD-R, later all dumps of games were done in such a way that the exploit was bundled.
You are correct though in that some games used the full 1GB+ capacity of the GD-ROM format and assets had to be removed/compressed in some cases.
Now botching the Saturn launch because of political infighting between the Japanese and American branches of the company? If you're going to call them complete dumbshits for anything, that's what I would pick.