A fan has remade Sonic & Knuckles with 3D graphics, but not everything is as it seems.
Sonic just isn't meant to be in 3D. Despite some success in the third dimension, his reception outside of the side-scrolling realm on average has been negative. In 2.5D, however, Sonic looks great. A fan named Robert Medina thinks so too, and has offered up his vision of what Sonic & Knuckles for the Sega Genesis would look like were it to be updated using 3D graphics.
Unfortunately, this video is not of a game developed by Medina, which would probably have been nuked by Sega lawyers anyway. It was created using 3D modeling program 3D Studio Max by animating over a playthrough of Sonic & Knuckles. He's nailed everything, from the looks of Sonic and the enemies to the somewhat more realistic looking environments.
It took Medina around three weeks in his spare time to create the short video. His goal was to see how the classic Sonic games would work in 2.5D. It's a great demo, at least.
Sega's upcoming Sonic the Hedgehog 4 will be a 2.5D game, but Medina's version looks more organic while Sonic 4 is more cartoon-like. I can't help but think that Sega should have gone Medina's way right after Sonic Adventure, rather than giving us Sonic Unleashed, et al.
Source: Sega Blog