Would this work? Connecting a Mega Drive / Genesis to a flatpanel through VGA.

You're probably thinking of ArcadeVGA, which is a MAME-friendly video card that's flexible for 15.6kHz RGB. It's actually just a stock Radeon card underneath (you can find the BIOS out there if you've got a suitable card for it). Alternatively there's Soft15kHz (free) or Powerstrip (costs) which can both try and force a normal VGA card to lower sync.

For arcade boards that don't exist in any real quantity, would cost huge amounts of money, require a complicated custom harness, or any combination of the above, I can see the appeal of MAME + some hardware or software solution. For a Megadrive (and most other popular consoles), though, it's overkill - it's trivial to get RGB out of the real console. If you're hell bent on not paying for games there are flash carts, or old-school backup units.

Aside from anything else Powerstrip and Soft15kHz are both capable of killing a CRT if they feed it the wrong signal accidentally (or if a normal VGA signal is fed at the wrong time). I'm a forgetful bugger at the best of time so that's pretty unattractive.