I mean, really...with this storyline, who would bother to even
play this game?

Taken from the Sonic CD Help guide in the PC release:

"Carnival Island's in chaos!  Tomorrow's the big opening day for Carnival Island, a huge amusement resort 
with the latest in high-tech rides and games.  As guardian of the island, it's Knuckles' job to make sure nothing goes 
wrong before the grand event."

Yeck!