Long version: From what I can gather, the SGB basically works as an extension to the original GB's hardware, where the GB software has to communicate with the SGB and send it the borders, palettes and any other special enhancements. It's not that the SGB does all that stuff on it's own because if "finds" it in the GB cart, but rather the GB CPU has to explicitly tell the SGB to do all the stuff. I read the SGB does do some checking of the GB header first and sets some stuff, but still the GB part has to actually send the stuff over.
Now, the GBC couldn't possibly take advantage of any of that, except the color palettes (but then again the GBC had superior coloring than the SGB extensions could offer so Nintendo just scrapped SGB colors on the GBC and made a whole new system), and neither could the SGB run in GBC mode. Knowing that, it makes sense that even games that had BOTH SGB extensions and Color mode were made to run in one of the two mutually exclusive modes. They will run in normal GB mode with optional SGB extensions (borders, limited color pallet es, SNES sound and other tricks) OR in Color mode without any SGB stuff.
BUT I still have a question: While it made no sense for commercial games running in "Color" mode to attempt to use SGB extensions, since no official hardware ever existed combining both functionalities, is there actually any intrinsic insurmountable conflict between the two standards that would prevent coexistence? overlapping addresses? clock incompatibilities?
My curiosity is due to titles like Wario Land 2, Zelda DX, and others that contain SGB extensions and, also, can run in Color mode.
Would it be theoretically possible to make an environment (through hardware or emulation) that offered both Color mode and SGB extensions concurrently?
This would be combined with hacked versions of these games that would run in Color mode and still load, at least, SGB borders, specially for games that have more than one border and change them during the game.
Some emulators attempt to run SGB+C games in SGB mode first until the first border is loaded and then reboot into Color mode, retaining that initial border for all the play session.
Now, I'm not asking for it to be made (though, I'd be very glad to see it).
I guess that with enough time and resources anything is possible and such emu/hardware could be made and games be hacked to use it. But I presume it's a very long shot.