To answer most of the questions asked:
GD-ROM does in fact read from rim to hub, with the exception of the innermost sector which contains CDDA audio and optionally PC-accessible bonus content. It also spins the disc at half the speed of a regular CD-ROM drive but reads at the same rate. That's how they cram 1.2GB of data onto what should be a 640-800MB disk.
The reason Dreamcasts are prone to not reading discs is because the denser data makes scratches much more serious. A scratch that would not cause a skip in a CD-ROM or audio CD can obliterate quite a bit of data on a GD-ROM.
The drive in a Dreamcast can read CD-ROM-formatted games because of a hook left in the BIOS to allow booting CD-ROM media to lessen the costs of prototyping games (blank GD-ROMs were only produced by Sega and were accordingly expensive). Pirates later discovered that hook and exploited it to allow copying of games.
The glitches or total lack of in-game audio, video, textures, or levels are likely due to bitty scratches on the discs; there's no way the drive could fail only at certain points on the discs. The drives that won't read anything are probably just the percentage of "well, it didn't really pass QC but I guess we'll let it slide" units that make it out the door of any electronics manufacturer. Sega probably let a few more Dreamcasts like that out the door than they should have because they were desperate to save their business.
Hope all that was helpful! ^_^