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Mr Puggsly said:

I think a relatively large number would upgrade if the the performance and visual differences were signficiant. If many don't want to upgrade, that's fine too as all games should support the original hardware.

You do know the expansion pack was was released near the tail end of the N64's life, right? So 16% of library using it is actually not bad.

If the specs boost is easy to use than developers will use it. They shouldn't be forced to use it either. It would be an intersting experiment with low risk.

Tail end? N64 released 1996, expansion pak 1998, gamecube 2001, last n64 game 2002.

Low risk is debatable. If few people upgrade and the average consumer prefers the cheaper model, then that's a big loss for Sony, which will make the ps5 less ambitious. Plus there seem to be as many people ready to abandon or switch consoles if this goes through. And what stops Sony from releasing a ps4.5 only game to boost sales, Nintendo got away with it.

It's a catch 22. If the spec boost is moderate, people won't care for the difference and ignore the upgade and so will most developers.
If the spec boost is really noticeable, the price will be a deterrant and developers are faced with extra work for no extra profit.

In both cases games will likely still be optimized for the base model and the new model will be under utilized as a result. That's fine for a $50 expansion pack, kinda shitty for a $399 console. A profitable 299 slim, then 249 slim will grow the user base much faster, generating more profit for everyone. A 399 refresh will have a dampening effect.