I've thought about this a lot. and assuming that production had to start most likely in the spring of 89, you only had a handful of titles to choose from to launch with from 87 and 88.
the launch titles
Shanghai - this wasn't going to catch on in the US and draw players
Bikkuriman World - Now there is an argument to be made for monsterboy in wonderland. However, it was already out and about on the mega system. so it wouldn't have been an exclusive.
The Kung Fu - others have already argued it's good and bad points.
Kato-chan Ken-chan - JJ and Jeff wouldn't have been a bad pick, but given it's regionality and the changing censoring that had to be done, and that they were targeting getting parents to buy for children, you understand why it wasn't picked.
Victory Run - A racing game against he like of sonic and mario just doesn't work.
88 Titles
Jaseiken Necromancer - too dark, too much to translate, RPG's hadn't taken off in NA either.
Yokai Dochuki - not a good enough game to consider. not bad but it wasn't exactly touted as great.
R-Type 1 and 2 - A bit too hard. and could a shooter compete with the mascots?
YouYou Jinsei - just no
Pro Yakyuu World Stadium - sports game have a limited market
Power League, Pro Tennis: World Court and Appare! Gateball- see above
Sengoku Mahjong - um no
Galaga '88 and Dragon Spirit - there are better shewties to go with than this mainly r type.
Mashin Eiyuuden Wataru - arguably the best platformer and great colors.
Alien Crush - too limited of a market
Gaia no Monshou - same problem as Necromancer
Mankyou Densetsu - Dan explained pretty well the downside. but it wouldn't have been bad
Fantasy Zone and Space Harrier - no exclusive, not a platformer
Sadakichi Sebun: Hideyoshi no Ougon - non action game [/size]
I think your actual choices then become KC, LA, (and maybe Monster Boy) really.
Given those choices I am going to say KCIAZ was probably a pretty good choice. I think the Downside was they overproduced units with this as the pack in. If they had the ability to add in Bonk's Adventure when it became available they would have had a much better advantage, as the game library grew. Hudson and NEC really needed a mascot badly, and not having one early hurt them.
All that being said. I always wonder what it would have been like if the pack in was one of the arcade ports or shooter? What if we had gotten all those great RPG's and the like.
Anyway I like KC and I wish it was just tossed aside as not being sonic or mario, it is exactly the reason to love the PCE/Turbo - Because it's different
TLDR: KC was the choice and is a good game, PCE is better because it is Different from those other companies.