you have a glitch in your diagram.. do NOT take Genesis sound and THEN tie that to the 32X audio output.. That's going to cause an overload, and I highly recommend NOT doing that.
Other than that one bit, how you hooked it up is how the SEGA manual shows it, which still has sucky Composite video..
RGB or Component is still the best route, as your bypassing any PAL/NTSC encoding all together, and keeping the colors pretty much seperate...

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