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Take everything in this post with a grain of salt and as MAJOR generalisations. I refuse to engage in point by point arguments, I've backed up all my opinions and i'm more interested in hearing what other peoples opinions are than I am having people try and deconstruct mine...
With that warning in place, please enjoy:

I'm fed up with people shouting at each other on other threads saying "Yes, but where's the character development?" It's a large complaint that there is little or no character development in the adventure games, and although it is there in heroes it's well disguised, hidden amongst waffle, cheesiness and other random things that had no right being in the game...

Others, like myself have tried to defend Shadow, Eggman, Sonic and co by pointing out that there is development, but weve got a crucial flaw. The characters are NOT developing, they are not going on a journey. Although their situation changes their fundamentals only shift slightly, from game to game. The only REAL character developments like Amy and Tails from Sonic Adventure 1 were promptly (mostly) undone in Adventure 2...

So, I want to propose a theory, quite a simple one but one that will solve a lot of problems in the long run: The Sonic games are not about Character development, they are about character Exploration...

The difference, well when you call it character development people can nit pick , but exploration covers anything. A simple interaction between 2 characters is exploration, and so far EVERY scripted Sonic game with a plot has given us plenty of interaction and develop... oops, exploration.

I personally think that characters like Shadow are being developed throughout SA2, that his personality and allegiances are shifting, but others disagree. What is certain is that by the end of the game, we know him better as a person. During the course of the game we get to get inside his head and flush him out, learn what makes him tick.
Same for Eggman, he's never been developed on a journey but you do slowly learn about his past, learn that he used to adore his grandfather and about his priorities. Even in Heroes we get plenty of development with the chaotix team, learning that Vector is smarter than he looks, Espio looks like the most level headed but isn't and Charmy is as doo lally as he appears. There is development, interaction, the details of the characters are flushed out for all to see.

Something Sonic Team has done in the last few games, and something I dont have a problem with, is that the stories have failed to put the characters on a journey. No, they are on a journey but not one that fundamentally affects them. Take Cloud in FF7, or any character from that game. The characters are directly linked to the stories plot and every twist affects them. With Sonic it's different, the incidental characters are more fundamentally linked to the plot than the main ones. We have a great cast with Sonic, Tails, Knuckles, Amy, Eggman, Shadow and Rouge being carried over. All of these characters have a developed personality and (with the exception of Shadow) backstory.

I think (hope) that the next Shadow game will put Shadow on an emotional journey and help to turn him into his own person, but I dont think that that person will be much different from his current one, just that he will have less of the "Who am I, what am I doing here," questions surrounding him...

And before anyone points out that not developing characters leads to stagnation, as little as it developed any characters there was nothing stagnant about SA2. It was different, lively and objective. Sonic and the cast respond to every situation in their own way, and there's a real delight in exploring new parts of mobius and the series lore (Chaos Emeralds, Gerald Robotnik and Metal Sonic)...