Alex Kidd in Miracle World was great... just amazing. I think if it was the original pack-in game with the Master System, running side by side at display kiosks against the NES/Super Mario Bros., it would have made a difference in the Master System's success in the U.S. But the Alex Kidd sequels were all over the place. The only one I enjoyed was The Lost Stars, because it had insane art direction and superb graphics that really pushed the limits of what was possible on the SMS... but it was far too easy. I'd love to see an Alex Kidd reboot of some sort, but I don't care for the ultra cutesy design that Sumo came up with recently.
Back on topic, I don't think these guys should get hired to work on Sonic, or get a cease & desist. I think they should wrap up this project and start an original IP, and Sega should take a good look at what they come up with.