Complex sentence: Sega had admitted how expensive and problematic the 32X was, so they decided to make a combined version of the Megadrive/Genesis and 32X, which they felt was a better idea.
Split into simpler sentences: Sega had admitted how expensive and problematic the 32X was. Sega decided to make a combined version of the Megadrive/Genesis and 32X, which they felt was a better idea.