Frankly, I don't see why the G3 shouldn't be compatible. Let's start with the Master System support. Master System support is provided by the sound hardware and the VDP (Video Display Processor). The Z80 was the main processor in the Master System, and is the sound processor in the Genesis. The sound chip is included as well. And the VDP can do Master System Mode 4, although it was never capable of doing any other modes. I fail to see how it would be impossible to remove these elements without breaking compatibility with pretty much every Genesis game. There's two possible explainations here. First, is that the lines to switch the Genesis into Master System mode are simply missing. Second, is that Master System mode is missing from the bios or somehow missing from the hardware (how you could do that, I have no idea). I guess Sega thought nobody cared and dropped support, one way or another.
The lack of 32X support is even more puzzling. After a bit of digging, it seems that it uses some connections that normal games don't. These connections are apparently missing from the Genesis 3, rendering the 32X, PBC, and Virtua Racing useless. I have no idea about the technical aspects here.
Frankly, I don't see why Sega decided to ditch support. It would have added very little cost at very little effort. I suppose they assumed that both products were so hated that nobody would care or even notice.