Final Fantasy VII almost single-handedly tilted the balance in favour of the PS1.
If the N64 had gone the CD route, Squaresoft would have stayed with Nintendo, and the battle between both consoles wouldn’t have been as one sided.

For the sake of argument, let's say their first party games stay as close to their real world form as possible in terms of actual design, albeit with the higher quality textures and audio that CDs allow.

It would have been a lot closer, but PS1 still would have won imo. PS1 ~80-85m, N64 ~55-60m.

With a CD-ROM format, Nintendo would likely have kept Square and Enix exclusive. That would have killed the PS1 in Japan. The Saturn outsold the PS1 during the two systems' first year in Japan. Final Fantasy VII was what turned the tables for Sony there, and at the time, it was a foregone conclusion that it was going to be a N64 exclusive. Had Square stayed, Enix and Dragon Quest VII would have stayed, and that would have sealed the PS1's fate in Japan. Nintendo might have been able to get games like Mother 3 N64 completed. Capcom would have likely developed Resident Evil cross-platform for the N64 launch. The only thing Sony had going for it early on in Japan was Tekken.

Sony would have done better in the West with a lot of support from EA, and they probably would have been able to secure at least time-limited exclusivity for Tomb Raider. They would have still dominated Europe. Nintendo would have eventually come out the winner in the United States, though, with a double whammy of Final Fantasy VII and Goldeneye for the holiday 1997 season and Zelda the next year.  Globally, the N64 would have walloped the PS1 with the N64 winning Asia and North America and the PS1 winning only in Europe.

In this scenario, Sega might have done somewhat better, but they also might have done even worse, to the point where they called it quits as a hardware market before they even tried to get the Dreamcast to market. And then there's the question of how the Xbox would have fared against a weaker PS2 and a stronger Gamecube (or equivalent, since a 5th gen win would likely have set Nintendo on a different course in 6th gen.)

Not a chance in hell a system with

Mario 64, GoldenEye, Final Fantasy VII, VIII, IX, Zelda: OoT, Star Wars titles, Dragon Quest VII, Parasite Eve, Mario Kart 64, Banjo-Kazooie, Perfect Dark exclusive, plus many multiplats like Resident Evil 1-3, probably Metal Gear Solid, Castlevania, etc. is only selling 55-60 million units IMO. 

That's way too low. 

They would dominate Japan for one and take the US probably too, which makes it impossible for any developer to keep their game off the system (like Konami and Metal Gear Solid) and they would get the same EA support and all that stuff too. 

This right here.

The PlayStation was floundering in Japan until Square announced FFVII as a PS1 exclusive. No FFVII, no Japan, and it would have severely damaged the PS1 in the United States as a result. Sony would have been stuck marketing Tomb Raider II and Crash Bandicoot 2 as its marquee games for the 1997 US holiday season, and in no universe can I see either game making as big a splash as FFVII and Goldeneye did. 

And that one exception literally made all the difference in Japan, and by extension, the United States, since the US game market was still dominated by Japanese games at the time. 

Yeah, no Sony was never the biggest or most powerful brand in electronics not even in Japan Panasonic is still bigger and so is Hitachi.

It would change things somewhat...Nintendo had draconian policies with cartridges and 3rd parties didn't like financial and technical restrictions they imposed.
Problem is, N64 was late to launch, so even with CD I don't think it would change things drastically.

At the time, a lot of respected companies tried their have at the lucrative gaming industry. NEC, Phillips, JVC, etc. Sony just felt like another one of those.

At the same time, a lot of factors hurt Nintendo. The "Ultra 64" arrived almost two years later than expected and launched with a whopping TWO games. Nintendo had a history of abusing 3rd parties and forcing censorship so many companies just wanted an alternative.

Still, as a child of the 90s that consumed every bit of gaming info I could get my hands on, there's no doubt in mind that Nintendo would have won. It wasn't until there were severe software droughts that the N64 began to falter. And even then, the lack of storage space just meant that the N64 version of every game was just going to be missing content.

Maybe you could compare polygons and textures (and even then, the N64 was missing a lot of details and looked blurry) but when the PS1 version of a game was running newfangled CGI FMV and the N64 version had a stagnant screen shot. PS1 had CD quality music while N64 games had 20 second looping songs. It's obvious which version of any given game was more impressive.

The day I saw Tekken 2 running on a PS1 and saw that full motion video intro was the day I jumped ship. Before that, I was a fan of Nintendo and Nintendo only.

Let's be honest. A much more powerful console at a lower price with games that didn't cost $60-$80 when the competition was selling software from $9-$40. A history of excellence and third party support? N64 would have been unstoppable. Instead, it became the console I sold after a year (bought one again two years later, though.).