>>8176123>The level design looks rough and the gameplay seems very twitchy.
To be fair, it is a somewhat early prototype. No doubt, it would've gotten serious refinements over the years.
Keep in mind, the fisheye lens prototypes came after the Nights 3D engine was scrapped because of Yuji Naka, and prior they were having issues trying to develop a 3D engine, so while this prototype is clearly a lot of jank, it's a miracle how far it managed to get.
Overall, again, I chalk it up to the lack of reasoning on part by SoJ. The wrong prototype was shown, and the team tried to correct their mistake, but Nakayama refused to see the correct prototype.>>8176143
Sonic X-Treme had two engines by the cancellation of the project. The main engine was the one shown in the video, and the one shown off here appears to be known as the "boss engine", which is believed to have been used in... well, the boss stages.
A lot of this is some SERIOUS speculation, but from the prototypes we have, this appears to have been the case.