To my mind, it may help to distinguish mistakes by quantity and quality. Come the 1990s (and leaving aside the earlier crash), I think Atari made qualitatively worse decisions. The Jaguar was touted as a 64-bit console; though not entirely untrue, they know how misleading they were being. Atari crashed and burned, rushing out whatever they could to save face.
I think Sega made less dramatic errors, but there were more errors that people didn't forget. As others have mentioned, the add-on approach wasn't prudent: even if there were decent CD/32x games, what stands out in the minds of most consumers is that you had to fork over all of that cash for games that likely weren't worth the cost. E.g., Stellar Assault is a fine game, but not for the cost. Though anecdotal, I recall my parents having the family sit out the fifth generation for that reason: "and you'll be asking me for a second Saturn next Christmas, right?" Fair skepticism.
Another important element to Sega's situation was the clash between Sega of America and Sega of Japan (I'm unaware of how Sega of Europe played into it). I get the impression that Sega really didn't know what to do after the Genesis (after all, they were the first to truly challenge Nintendo: where does one go next?) Some wanted to hold onto the Genesis, others wanted to move onto the Saturn. A house divided doesn't well stand, especially when Bernie Stolar is your new landlord. The Saturn was a glorified RPG powerhouse, but the West wanted 3D; we know who won that battle.
That said, it's probably for the best that we didn't get Sonic X-Treme: that could've wounded Sega far worse than '06 (at least they were done with consoles then).
The last comparison is how Sega handled the Dreamcast: I think they were capable of pulling it all together for a decent final fight, and it shows that they had some competence all along: online play, inventive IPs and, most importantly, a far more unified marketing approach come to mind. They could have been solid in the mid-'90s, but little skirmishes got in the way. A fine example of this was EA choosing not to publish for the console. It led to fine sports games, but at a cost. So too, GTA III was in development for the Dreamcast, but pulled when Sega said sayonara. What could've been...
Sega pulled the parachute chord a little too late; Atari just let the diver fall.