I am personall VERY disappointed that Microsoft botched Game Room in a big way.  The emulation was iffy, and the client crashed.  It was fun having one's own arcade, even if limited, seeing what other people had and issuing challenges.

Well, I was thinking, it would be cool if Nintendo could repackage their VIrtual Console stuff and give people an arcade to play them in. You could have virtual versions of home consoles also.  

Not sure who else would be interested.

Complete with arcade cabinets.  Amusement parks have arcades, so this is what came to my mind.

Sounds like a good idea to me!

i'm not a fan of replacing a simple to navigate menu system with a convoluted, slow overworld.

I second that. There's no way a home console can actually simulate a dank, neon-lit arcade full of cabinets. Why waste time trying when you can have a snappy, elegant menu system.

Either way it wouldnt bother me.

I didn't say replace.  What I said was something in addition to.  

Bigger thing here is to have a way for players to be able to challenge each other at games, and compete for high score in tournaments.  The Virtual Console arguably has a decent enough interface, but it has little in the way of connecting with other players.