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S.Peelman said:
From a gameplay perspective though (ignoring what "made sense" business-wise) I am glad Nintendo stuck with cartridges. CD drives and by extend the PlayStation one were terrible back them. Playing the fast and smooth N64 after sitting through an afternoon of loading screens and read errors was always a godsend.

Could've kept the cartridge slot, there's no rule that says you can't have both. Saturn did. Hell they could've just ditched the RAM expansion slot and let the cartridge slot act as a RAM expansion slot when using CD games. This is exactly what the Saturn did. 

You also easily could've done things like cartridge games that offload all music/voice acting to a 5 cent CD disc ... thus not using up valuable and expensive cartridge space, allowing for more space for game data too even if you wanted to make a cartridge game. This would've been a huge addition to the N64 too since it lacked a dedicated sound chip.