The idea wasn't to prevent piracy via PC emulation, but to prevent bootleg disks that could be played on an unmodded console (the Dreamcast greatly suffered because of this; I had a few myself).

OT: N64 would have gotten Metal Gear Solid and Final Fantasy if it took discs. Things would have been much better.

I think it would have increased sales but not to playstation levels. Nintendo launched the console almost a year after its rivals. Playstation was starting to really take off and saturn was sufferig. When it hit it was expensive compared to Playstation and the heavily discounted Saturn. 

You always hear rumours of Nintendos indifference to 3rd parties back then. Arrogance almost. I remember hearing EA accusing Nintendo of greed in choosing cartridge over CD (I think it was Nintendo power I read it...). Nintendo defended their decision by stating it was a move against piracy and offered zero loading times. A quick google reveals a CD was $0.35 whereas cartridge was $3.50.  I know storage was a big decision when Squaresoft chose to make FFVII. I heard a qoute from ages ago from George Harrison who apparently said at the time "most of our customers wouldnt appreciate such a slow or tedious game as FFVII". Ive heard this a few times but could never verify a source so please, if you know its bullshit then let me know and lll remove it.

But having CD as their main format would have given them an edge and made them more competitive pricewise. But I think Playstation would still have outsold it and had a majority of 3rd party support. 

Games would have been cheaper for sure, but whether games like Metal Gear and Final fantasy would have stayed with Nintendo is impossible to say

i love the expansion pack in red.

anyways, cartridge was nice, no need for cds.

Final Fantasy VII *drops mic, walk away*

I do not think much would have changed. Sony at the time was dominating in most of their business markets. 1st party really sold well too in PS1 days.

Allowing 2D games and making a 2D Mario for N64 and having controllers meant for two hands would have made more difference than the cartridges.

Moderate difference.
Grafix wouldve looked better, FMVs and voice acting wouldve been the norm, and it wouldve had way more multiplats, but at the end of the day, the games would be similar in concept and execution.
In terms of sales i think it wouldve made bigger difference, like pushing N64 to 50-60m ltd sales. Psx wouldve sold 60-70m.

How exactly did Nintendo bully Sony during the SNES-CD development? Keep in mind that the contract was revealed from Sony that would have essentially forced Nintendo to become a 2nd party developer for Sony's CD addon.

Sony also considered Nintendo a competitor long before the SNES CD. You just need to read the transcripts of how upper management grilled Ken Kuturagi for "working with the enemy" when he designed the SPC700 sound processor for the SNES.

You also have to take into account that when Square left, they pressured Capcom and Namco to follow suit, so the exclusive IP to Nintendo then would have remained exclusive (Final Fantasy, Megaman, Tales series, etc). However, I still think Konami would have released MGS on the PSX, followed by the N64 after abysmal sales.

How would it have went? 3rd parties would have considered Sony, like all other electronics companies that tried to get a foothold in the market (Philips, NEC, LG, Matsushita), it was too big of a risk to invest in, and Sony would have bowed out of the games industry before the generation was even complete. The reason why they succeeded? Revolt. From all of the major 3rd parties, at the same time.