"Sega broke ground in the late 90s with one of the first digital game distribution systems for consoles."
By the time this came on to the scene the idea was already 14 years old. Intellivision was doing it in 1980: https://en.wikipedia.org/wiki/PlayCable
The idea blows people's minds if they think of a TV channel as just a channel for delivering TV, but the concept is not that hard if you realize it's just a way to broadcast data, most of which happens to be television video signals. The problem is making it cost-effective for a console to have an amount of RAM normally associated with a cartridge. For most of console gaming's lifespan cart size completely outclassed RAM size so storing a full cartridge image in RAM was expensive for what was generally the low end of the market. Plus the RAM you could stick in the receiver put a firm upper limit on how large a cart you could broadcast, and in an era still undeniably ruled by Moore's Law the size of the more desirable carts tended to outrun the RAM put in these things so they tended to become rapidly unable to keep up with the cart sizes.
That's got to be a good part of it. And to top it off, there wasn't persistent storage available locally, so you couldn't build up a little library of playable content you received from such a service, having to sacrifice the old stuff to get something new, and if they didn't rebroadcast that item, you would never see it again.
I'm sure to some kinds of people that was fine, but I think people kind of don't like having to delete something they like even a little -- even if they won't play it again, they'd rather know they can.
some months they had General Chaos and some they didnt. perhaps the coolest thing was only my one friend had it so we had to go over to his house to play it not like today where I would just passively consume it in a sad room all alone.
Couldn't they just have released a "blank" cartridge with RAM?
That's essentially what the Sega Channel adapter was. The service didn't rely on something like you'd expect from a modern cable modem. The games were broadcast in a round-robin fashion (presumably broken up into blocks, as I remember the time to initiate a download was never super long, but the whole process to play a game did take a small amount of time). The adapter thus needed hardware and software in order to decode with the one-way signal to download the menu and game data.
The main cartridge (with the cable modem) was presumably heavily subsidized by the expected recurring revenue, which relies on the ephemeralness of the games. Offering RAM carts (even at cost) would threaten that revenue as people can stock up on games and cancel their subscription once they've built up their collection.