Looking back, this would have been a strange piece of casting! When Billy Bob Thornton dropped out, a new Sgt. Horvath had to be found quickly. We already know that Tom Sizemore ended up playing the part, but that he had drug issues at the time which put producers off the idea of using him. Spielberg wouldn't have had Sizemore at the top of his list, and instead contacted Michael Madsen to see if he could persuade him to take the part.
Madsen would no doubt have put his own unique twist on the part, just as he has done with every role he's ever played, but for whatever reason he decided it just wasn't for him. He did still have a role to play though; it was his conversation with Spielberg that persuaded the director to take a chance on Sizemore; Madsen assured him that he'd be ideal for the part and recommended him strongly. Spielberg took the advice.