Okay here is the deal:
The first Sonic 1 has no way of wrapping backgrounds. Backgrounds used the same scrolling technology as the foreground, only scrolling slower. This can be seen in Labyrinth Zone all 4 acts and Scrap Brain Act 2.
Green Hill and Star Light were the only zones using individual scanline scrolling.
The problem is simple: Sonic background add tiles to the scroll plane only when needed, which is when the virtual camera (there are more than one for GHZ that make up the mountains scroll speed) has moved 16 pixels from the last update.
Sonic 1 saves alot of CPU time by using dirty rectangle updating, but it is not enough so scrolling must not be done with a water level higher up than approximately 40 screen pixels.
Updating tiles at the very edge of the screen works for plane rectangle scrolling, but NOT for scanline scrolling, since 1 scanline will move faster than the other, it will reach the new tile before the other.
As we all know, dirty fixes are usually applied to hide bugs at the very end of the deadline for a project. Having a black palette with tiny stars for Star Light, and a really bright palette for Green Hill will make it hard for the naked eye to notice the bug.
But when the new background system was developed for the Sonic 1 Japan release, the ability to have both updating, and wrapping sections in the same bavkground was the big news!
The most complicated backgrounds using this system in the original Sonic games are in order of appearance: Marble Zone, Scrap Brain Zone, Launch Base Zone, and Lava Reef.
Why not the rest? Because the system was time consuming for the programmer. The only real Sonic level actually taking advantage of the system is Lava Reef, and that level is by far the best.
The more complicated a project becomes, the more it falls back into the same old bugs. The level right after Lava Reef, Hidden Palace, has a beautiful Death Egg background too, but the whole background scrolls just as bad as the first Green Hill from Sonic 1 (using only dirty rectangle tile update). The only reason you haven't noticed it yet is because the background palette is too dark.
Sonic 2 HD will take advantage of the original background system. It isn't just programming wise, but art as well