People should have known that the system would eventually be proven to be capable of non-flicker-based transparencies by a home brew coder exploring an undocumented feature 15 years after the system was dead (f*cking DUH!)
You should know now since examples have been given to more than once, that many published PCE games from bitd feature non-flicker transparency effects.
I'm a bit hazy about the exact details that previous "SignOfZeta hates PC Engine" witch hunt turned up, but in the end I thought we agreed that we have different opinions of what transparencies are, what flicker based transparencies are, etc. To me, the first system to do real transparencies, where you could just throw down a layer and change its opacity at will, numerically, with a hardware function, where slowdown would not f*ck up the effect because it wasn't based on an interlacing trick, was the SNES. The PS, SS were the next big ones to have it built in, although the CDI, Jag, and 3DO might have done it as well, I'm totally clueless about the capabilities of those systems.
The way the PCE does transparencies is the same way its done on Genesis, Neo Geo, and other 16 bit arcade hardware. The object is there, it isn't there, it is there, it isn't there, really fast like that, so that it appears half there. In other words, it flickers. Its not transparent like a clear piece of plastic of glass is transparent. When things are transparent in real life they aren't %50 opaque because the thing is only there %50 of the time and absent the other %50 of the time. They are %50 transparent because only %50 of the light actually travels though them. On PCE you can't really change how transparent an object is except by changing the rate of the flicker, and that really falls apart at certain levels. Ie: you can't have something with %5 opacity since that would mean having the object only appear in %5 of the frames which...really wouldn't work for shit...although it is done quite frequently, usually when a character dies and is meant to disappear. Of course you can also make things seem transparent via very careful pallet choices and dithering effects, but those aren't variable at all.
If the coder wanted to make the clouds slightly more opaque he could assign a different opacity factor. If the game slows down (which it certainly does, because its a SNES after all) there is no constantly changing flicker rate to f*ck up the effect. Its exactly that opaque all the time.
Like I said before, I'm sure you think this looks like shit, or that its unfair tackily made bullshit, it doesn't matter, but its an actual transparent layer, just like in Photoshop or, in the old days, cels painted with transparent paint, gels that go over spotlights, etc. The PCE doesn't do this, at least not in retail games. Its OK though. I DONT HATE THE PCE. I'm just saying that the SNES was the first system to do this, three years later. Not even the Neo Geo can do it.
Now that I think about it, the fact that I chose Kikikaikai is interesting. This game is on both PCE and SFC. The PCE version is much more like the arcade version, the SNES version is a hella hopped up remake. Most people who aren't super hardcore fanboys with lifelong devotions to specific companies would say that the SNES version is quite a bit fancier. There are many many reason this is the case, but it really does illustrate my point that the PCE does not appear as powerful as the SNES to most people. Most people don't care that the PCE version is several years older, wasn't that great of a port, and was never designed to be fancier than the arcade in the first place, etc, they just look at the stuff and judge the SFC port to be better. That's what they did in Japan of course, in the US Kikikaikai never came out for TG16 and nobody played the SNES version, they would have made other comparisons, but either way...that's what they did, world wide, and this is why the SNES is usually regarded as the "winner" of the 16-bit era. People in 1990 didn't know about all the in-depth analysis of system capabilities you and other people would provide years into the future. They could only see what they saw at the store, at the arcade, and at their friends house.
There is theory, and there is reality. In politics people will often go with theory, but when it comes to spending cash, they usually go with reality. The reality is that by 1992 people were buying SNES because when they saw the SNES, they liked what they saw. The OP asked, "What went wrong" with the Duo. Well, people didn't like what they saw. They saw the visuals as being from the past and the price as being from the future. Strictly speaking, that's exactly what it was. An architecture from 1987 and a price point that wouldn't become acceptable until 1995.