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Rare isn't what it used to be. They are by no means a bad developer, but let's be honest - the quality of their games now has nothing on their games back on N64 and SNES. As others have said, a lot of the talent left BEFORE Microsoft bought them, though that's not to say new talent won't emerge. As it stands, however, I don't think there would be much advantage to buying them back, nor do I think Microsoft would be willing to sell.

I also think that the mentoring idea has some merit to it. When Rare was big, they had a lot of interaction with Nintendo and I think that was useful for them. Look at Retro and what they've done with the Metroid Prime series under Nintendo's guidance. There's certainly precedent there.