The real limiting factor is the 32X itself. It simply can't update the entire screen with 2D graphics all by itself fast enough, the framebuffers and CPU-driven graphics can't do it without sacrificing 60fps. Take a game like Pitfall: The Mayan Adventure, it uses the 32X to draw the foreground, background and many other things which makes for a sluggish game.
Knuckles Chaotix does the opposite, it draws the foreground and background with the Genesis, sprites on the 32X.
So, to build a Neo Geo port, you'd have to do most of the graphics on the Genesis VDP which has a color limitation, but not having to draw sprites means more colors can be devoted to backgrounds, still nowhere near the level of the Neo Geo though. Sprites could be done on the 32X and with enough ROM and perhaps some extra RAM on the cartridge, you could have really nice looking sprites at least.
For an example of the above description, look at Mortal Kombat II. Sprites on the 32X, foreground and backgrounds on the Genesis.