I'm sure they had already invested some cash, though the studio was initially a joint venture, and did not become a first party and a division of Nintendo until 2002.

It's just kinda ironic that MS paid so much for a studio on the decline while the same year Nintendo bought out a mess of a studio for comparatively little and whipped them into shape to become one of the best in the business.

I'd argue that Rare peaked in 96-98, and then declined in 99 onward.

Even though their output was fairly high with 10 games in 2 years, and arguably with more polish, they did not have the same oomf of their earlier counter-parts; and replaying them years later, are just not as fun.

On their two big titles from this period: While objectively Perfect Dark and DK64 are more feature filled and polished than GE007 and BK, neither were as groundbreaking, they both lacked the pacing perfection of the predecessors, and the level design just wasn't as fun or satisfying. Micky Speedway was no DKR either. This wasn't a situation like DKC where the sequels were arguably improvements over the originals with even better level design.

Jet Force Gemini was the last somewhat fresh game they had on the N64 until their last outing with Conker BFD. Also, probably, their most underrated game on the console unless you speak with a Blast Corps fan.

I am guessing Star Fox Adventures is the spiritual sequel to JFG, but again, while it was more polished, the decline was obvious.

Conker's Bad Fur Day in 2001 seems more like an exception than a proof of their competence. It was more of an anomaly of fun and fresh feeling gameplay. I would hazard to speculate that the brilliance in that one is leftover from early times, the game was 5 years in the making.

Nintendo wasn't happy with Conker as it was rated M on their console.

Nintendo already gor Mario, they don't need Banjo.

The way Nintendo acts with racing games these days not named Mario Kart, I don't think they mind not being able to release Diddy Kong Racing. Heck, technically they have already 'borrowed' the multiple vehicle for different terrain mechanic at this point. And another kart game that reminds people about how much fun a battle mode can be when properly implemented will just get on someone's nerves over there at EAD.

I can't emphasize enough how Starfox Adventures is a complete failure and shows that the magic was somewhat gone. 

 Microsoft has done jack shit with the Rare IPs (omg that horrid Perfect Dark game they made for the Xbox)

Pretty much, yeah.

About the only legacy of Rare's former greatness that remains in Adventures is it's admittedly spectacular graphics. So their tech guys were still at the top of their field, (as further evidenced by Conker Live and Reloaded on Xbox) but their game design had fallen off a cliff in terms of quality.

Not to mention butchering Banjo-Kazooie with the abomination that was Nuts 'n' Bolts. :(

Nuts and Bolts is a fine vehicle patformer game. Rare made great IPs under MS, such as Viva Pinata, Kinect Sport, Kameo and Sea of Thieves is looking to be another one.

Gaming has changed a lot since the 4th & 5th gen, Rare had to readjust according to their circumstances.

Not really comparable, Retro wasn't some studio Nintendo just randomly bought, Retro was a studio created by Nintendo in association with one of the Turok guys at Acclaim. 

The studio was in chaos early on, and Nintendo was pissed off, so they basically bought out the Acclaim guy who was partying too much, cancelled all their games (Ravenblade, an NFL football game, a racing/combat game, some adventure/action game) and made them work on Metroid Prime. 

But Nintendo had already by that point pumped a lot of money into Retro. 

Nintendo wasn't happy with Conker as it was rated M on their console.

Nintendo already gor Mario, they don't need Banjo.

Nintendo doesn't mind having some M-rated games, just look at Bayonetta 2 and Fatal Frame V.