Nintendo gets a bad rap because they're more militant about this than other major publishers. For example, Microsoft is far more lax when it comes to fan creations. While they do have their rules regarding what is or isn't allowed, they have allowed quite a few fan games based on properties like Halo, including SPV3, Installation 01, and Project Contingency. If MS was like Nintendo, they would have shut those projects down on sight.
Nintendo may be within their rights to do what they do, but this zero-tolerance approach to fan games does not built any good will with gamers. They could at least try a more permissive approach like what MS does, allowing non-commercial releases of projects based on Nintendo IP with certain sharply-defined parameters.