> This repo does not include all assets necessary for compiling the ROMs. A prior copy of the game is required to extract the assets.
In other words, the repo only contains the reverse-engineered source code, not any reproductions of Nintendo's copyrighted or trademarked materials. You have to produce those infringing assets yourself—using tools they supply, yes; but also, crucially, by feeding in a copy of the game you already—presumably—have a private-use license for.
That seems a much harder line to draw
The decompilation process didn't result in C source code that exactly matches the C source code that Nintendo wrote. (For one thing, the identifier names are different. Probably they use different-but-equivalent control structures in places. Intermediate variables might be introduced that didn't exist in the original.) And as such, that code isn't something Nintendo owns.
This is why the Oracle vs. Google Java lawsuit had to be about header files that were copied verbatim — because Oracle had no grounds to stand on for suing for infringement for the reverse-engineered-and-rewritten implementation code.
(Note that Nintendo could in theory have patented some of the high-level process stuff going on in their code; but that's rare and unlikely enough in litigious America, let alone in Japan.)
I can take something copyrighted, and generate an unlimited number of different things that infringe copyright. I could take Harry Potter and change where the line breaks are—countless variations. Or I could add commentary to the margins. I could put different pictures on the cover. I could translate the book into different languages. I could write new chapters and stick them in the middle.
> such an exception to the author’s exclusive rights may not be used in a way which prejudices the legitimate interests of the rightholder or which conflicts with a normal exploitation of the program
could be interpreted to mean that, especially for anything still being sold (like the retro games sold on Switch), interop for the sake of interop would very likely conflict with Nintendo's legitimate [business] interest.