Sega was toying with VR as early as 1991. This headset never made it to market, but it was clearly something they were interested in for a long time. The problem here, I think, is in figuring out what happened in that decade in between. I could see Ito going for something more immersive and groundbreaking (especially for the time) to launch a new initiative of Sega's - but then again, they could have just done it as an internal project without Ito involved at all if they never expected it to see the light of day (which it sounds like it shouldn't have given how some of the folks responses here who claim to have played it). At the time, the tech would have been bad enough that it wouldn't be unreasonable to expect headaches, nausea, even possible neurological things like flashing lights that we have a lot more safeguards for today.
It's definitely throwing me for a loop that there seems to be this physical and VR duality going on. It could also be a sort of proto-AR (augmented reality) where it displayed visuals on top of a physical cabinet (which sounds awesome and trippy as hell for Ito stuff).