Great thread, OP.
We constantly need to remind ourselves and the community on how this is a very important IP amongst the best of Capcom. People often think that 3 is what killed the IP but in reality, their attempt at replicating the success of Bio2 in DC2 was the real beginning of the end for DC. I still can't believe, even today, a guy as reputed in the company and the industry like Kobayashi would even consider pitching a project like DC2.
Forget the spin-offs, they always have a dedicated playerbase (just like Gun Survivor was for Biohazard), but when you're taking the mainline entry into an entirely different direction, it's always risky, let alone contrasting to what Bio2 did. The result spoke clearly in sales and it wasn't just the Dreamcast numbers which gave a spike. Takumi by all means isn't a bad design/director and so are his team at CPS. This led to the inevitable fall of DC and the final nail in the coffin with 3.
Do note that this was a time when entire projects were completely renamed to new IP's with the new console generation playing a vital role in restructuring these projects, like the original pitch for Bio4 which Kamiya turned into DMC and Inafune + Takeuchi being busy with Onimusha (which was actually supposed to be another Biohazard spinoff set in the sengoku period) etc. They went on to try different pitches internally.
If you look at Onimusha as an IP alone it evolved pretty drastically in the same generation. Their whole idea was to cater to the west more than they have already. 1 & 2 being textbook pre-rendered movement w/ tank controls & dynamic camera angles per scene (there is a reason for this, both Oni 1 & 2 were in active development simultaneously), to the start of complete 3D worlds with camera control in Demon Siege & DoD with occasional dynamic camera - all that with mechanical upgrades in design upon EACH sequel. The only thing that DoD overdid were the accessories, and some hitbox fuckups with block issens. Onimusha, also as an IP was lucky to have had some of the best talent at Capcom at the time. Went from Takeuchi, Eshiro, Nakai & Kimura - all under Inafune & Ono. Kamiya even used a bug during a playtest of Warlords, which later turned out to be air juggles in DMC, one of the main backbones of DMC's mechanical depth in gameplay in the later games starting with 3.
The biggest mistake (or rather, a blessing in disguise) they did was to remove Team Little Devils from DMC2's development and Itsuno was unfairly blamed for that abomination, led by some other internal design/director. Itsuno joined in entirely late in development. Kamiya even addresses this in an interview or on twitter (LOL, I don't remember, sorry). It's like blaming Platinum Games and Saito Kenji if Konami released Metal Gear Solid: Rising done by their internal team instead of MGR, and we all blame on Saito for it's debacle. They tried mechanically and in game design with some new IP's like Chaos Legion (which tanked commercially) to find & fuel their flagship IP's. But all that paid off so much in DMC 3 & 4 and their SE's.
Biohazard went through a series of makeovers in itself from 3.5 to DMC to the hookman demo and finally the game. DC doesn't come in here, but REmake 2. The success of REmake 2 and timeframe of Pacific Rim 2 might serve as a perfect opportunity for a good pitch about a DC Remake. With right marketing, this IP has huge potential. Just hope that it doesn't end up exclusive to any platform, unless of course, there's absolutely nobody to fund it.