My theory on how the levels were lost:

It's a well known fact that Sonic 2 was a rush release job. Therefore, 
as Sonic Team were in the final stages of development, they suddenly 
realised that they had to get the game out in time for the release date, 
which was very close! Therefore, they loaded up Sonic 2, and removed 
the actual level data for Hidden Palace and Wood Zone (which were not 
quite finished - see the beta). 
They then put some code in to make the game skip these levels, and removed 
them from the level select.
After tidying up the game and removing the unfinished levels, the ROMs were
burned and the cartridges were manufactured.

In my opinion, a Genesis ROM is just a bunch of files which are compiled
and encoded. Sonic Team might have forgotten to remove one file, which held
the basic structure of the Hidden Palace Zone - that's why you can access
it by hacking. Also, the palette data for all the levels is stored in one
file, and it would have been too tricky to remove the Wood Zone and Hidden
Palace palette from the file. Therefore, you can still access Wood Zone's
palette by hacking. Likewise, all the sounds and music are stored in
one separate file - it would have been too tricky to remove sound #10 and
make the game skip it.

Anyway, that's my main theory.