Of course they didnt assume everybody has the same setup. But they likely did make things to appear a certain way on an average setup or a range of setups that only looked good on the top 1% of monitors.
And the waterfall transparency trick doesnt make the entire game look bad. It makes one specific part look really cool and the rest just looks like a sonic game, which is to say absolutely incredible in CRT and mediocre on a modern monitor.
Looking at the color choices on old sonic sprites alone, the artists at sega would have to suck to make those decisions knowing how they look without the assumed artifacting of an LCD. And that’s not getting into the decisions they made that make the pixel grid obvious and deacrease the apparent resolution of the sprite. The sprites are clearly drawn by skilled hands but with flaws that even a newbie would avoid on a modern monitor. The only reasonable explanation is that these artists knew what they were doing and took into account the display media that the end user would experience
So Prodigy was good?