By the time Rare was sold to MS, much of the talent behind games like Banjo Kazooie, Goldeneye, Perfect Dark, DKC, etc had already left the building.
Their last Nintendo game, Starfox Adventures, was already a mediocre showing, and from that point on their mojo never returned.
Nintendo could have bought Rare and tried to whip them into shape, but by that point maybe they were right not to.