Sonic being the exception

Another: Thunderforce 4. IMHO the finest horizontal shoot 'em up ever made on any system.

And Rocket Knight Adventures - which is quite colorful.

https://en.wikipedia.org/wiki/Rocket_Knight_Adventures

Right! That one looked cheerful.

Doesn't that mean it's not the hardware's color limitations, but rather how color is used by the artists?

There are plenty of gorgeous games on the Mega Drive in terms of color. 61 colors on screen at once is more than enough.

Thats not how exceptions work.

If it's a hardware limitation, there are no exceptions. Which is it?