BY 1998 standards it was super powerful though, that's simply how it is. The only thing more powerful were the Model 3 boards which were thousands of dollars each and even then the DC had some advantages. It was a lot faster than my Pentium 2 400 and Voodoo 2 - at least in terms of graphics (the Pentium 2 would have been faster at some simulation and scripting stuff no doubt).
It's just that technology was moving at a breakneck pace and two years was a long time then.
Arguably no machine ever truly reaches it's full potential, but having such a short life and limited development support meant there was little to no time to experiment with more advanced techniques that the system allowed, and assets were being made with primitive tools by developers who were still learning how to make best use of all the extra capability they'd gotten over PS1. The amazing Shenmue 1/2 for example was a Saturn remake made without automated version control, and bug management was done manually using an excel spreadsheet. Most of the assets for Shenmue 1 and 2 were actually made before the DC launched in Japan, and the only use of bump mapping was a seemingly experimental hand made application on a coin you looked at in a menu.
(Side note, but there's a great Shenmue Yu Suzuki talk with Mark Cerny translating, the game being as mindblowing as it was at the time is due to an insane vision, talent and raw determination. Mark Cerny being friends with Yu Suzuki is the icing on the cake).
If PS2 had seen only limited support and died off around the end of 2002 it wouldn't be the legendary system it turned out to be. PS1 software came on loads over the years, as did PS2 software. Somehow slap bang in the middle of these Dreamcast software wouldn't? This isn't a DC vs PS2 thing, it's a development thing.