Since others post their theories about the desert level anyway, I will post my mine, very understandable when you are a game developper I think:

First, this is obvious that this sand/snow level with a palette change existed, at an early stage than our beta. When you start writing a game, with the storyboard, you plan some levels you will make for the game, without chosing their definitive names. Some levels were planned at start: a Green Hill level (like Sonic 1 one), a Neo Green Hill (something a bit different than a Green Hill), an Hill Top level (at the top of a mountain, trough clouds), a Wood level (lost in a forest), a Casino level (at night, you usually go to casino at night), a Chemical Plant level (a plant with some odd substances), an hidden level (called Hidden Palace because this is a beautiful level with some gems), a Metropolis level (like the famous film Metropolis by Fritz Lang in 1927), a sky fortress level (a fortress in the sky), a death egg level (the last one, like Star Wars films), a sand/snow level, and then a city level (maybe with a catastrophe, we don't know...). This is where my theory start...

I think the cave level was not planned at start (12 levels planned already). Having 13 levels in a game is kinda odd...All level names under the beta were descriptive and not definitive, developpers certainly don't care so much about their names at this point. When you compare a desert with a snowy mountain, you can't find matches with the relief, or with the weather, or vegetables. The only thing matching is this idea of dust coming from the sand and the powdery snow. Then, why not call it Dust....Hill at start for developpers (Like Green Hill, Neo Green Hill, Hill Top, Whateveryouwant Hill)?

Now, we are highly thinking that Genocide City was out of the game developpement before sand/snow level. In fact, Wood zone was cut pretty early too, after the sand/snow level, and Brenda Ross remember it very well. BR can't remember GCZ (as well for Craig Stitt), because she never saw this level! It was cut before her level...So why they keep GCZ under the level select and not the sand/snow level? I think every levels planned at start are under this level select, and the cave level is again in an early developpement stage in our beta (2, 3 sprites and some tiles), not like the others not cutted out. Then, I think Dust Hill was the sand/snow level slot, and when they cut it from the game, planning another cave level instead, they put the cave level in this slot (instead of creating a new one, and Dust Hill is better for a cave level than Wood or Genocide City). They changed the developpement name after to Mystic Cave (like some others), before the release of Sonic 2 in 1992.

That's all what I think about this sand/snow level. This is 99% false for sure, but this maybe 99% true, unfortunately we will never know...
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EDIT: In my first sentence, I mean existed on the paper at least.

(mais je crois que sonic est dejà allé sur une plage :p)