Ok, good news!
I got the vertex animation working with compressed vertices (6 bytes each instead of 12 bytes) and linear interpolation (so that you can display a 60 FPS animation with only 15 frames or less if you wish).
Vertex animation allows you to do animations as complex as you want.
I got 40 frames of animation down to 10 KB with 175 vertices (the Sonic model) at 15 fps interpolated to 60 (so 10 frames of animation instead of 40).
I still need to add normals with (maybe, could be overkill) interpolation as well.
It should be possible to compress the normals to 3 bytes instead of 12, but I'll need to see the results as it could be bad.
For the Sonic model, I could probably have 240 frames worth of animation down to less than 100 KB.
While it's a lot, Sonic moves fast so I need more frames, but for a slow moving caracter (like a human) you could probably get good results at 1/6 animation or less if you dismiss 60 FPS.
I still need to improve everything and the user interface is quite complicated right now (you need both your base OBJ model with material and the animation OBJ files numbered in a linear fashion - but Blender can generate those easily).
I'm also worried about the impact on CPU.
Sadly I don't know assembly so I won't be able to fully optimize the function or offload it to the SCU DSP, but I hope to keep the cost to a minimum.
I also added an option to reorganize the 3D model so that you can easily add bone-animation to it if you wish to (for manual animation only).
I hope to release the new version of the converter tool this week.