I hear a lot people blame MS for RARE´s downfall from the greatness of their N64 days, but does the blame lie entirely with Microsoft?

RARE used to be a giant on the N64, some of their games were better than Nintendo´s, imo, but if I remember correctly, things weren´t so rosy (don´t know the reasons) between RARE and Nintendo during the N64-GameCube transition, something about the main developers leaving or something.

I remember some story about how RARE was already in internal turmoil by the time MS bought them.

No, Rare was losing its talent already. Microsofts purchase didnt actually affect Rares downfall, it just gets the blame.

No.

The Rare development groups were starting to unravel during the time with the Gamecube but the major developers didn't leave until Rare was sold. All Microsoft got out of the deal with the IPs and some of the minor developers. Nintendo didn't want to invest in Rare because as said the development teams where not producing like they did during the N64 days. And Nintendo seen that so they decided to invest elsewhere. Even if Nintendo decided to buy them, I think the developers would have still left.

But the question would be who would of handled the transition better. About at the same time Nintendo had their hands full with the then under-performing Retro whose management was just pissing money away. So I think the question came down to which studio had a better future. Rare who they would of probably lost all the talent anyway or Retro which had a high chance that the talent would stay once Nintendo booted the management.

I like to imagine Perfect Dark Zero, Kameo, Banjo Threeie, Killer Instinct, Conker 2 all on the Gamecube

The last thing they made for the GC (that fox adventures game) was not really great either. PDZ was not that great but Kameo and Banjo weren't that bad. The first one just needed more time but because it was a launch game a lot was cut out of the game. (You see it when you are running on your horse through the big empty fields) and for Banjo...Well someone had the bad idea of doing vehicles in the game. But overall I enjoyed playing it. I hope to see more next generation from them.

Like with most things, the truth lies somewhere in the middle. Rare lost most of its best talent around 2002, so the studio wasn't as important or as relevant as it once was. That being said, Microsoft mismanaged Rare and didn't take full advantage of its intellectual property.

You really didnt like Star Fox Adventures? I know it wasnt traditional Star Fox but i still think it was an excellent game, they should have just kept it Dinosaur Planet though

I think the downfall was happening before the buyout, but the buyout accelerated it.