Pretty sure the "side team" was handling the DKC: TF port for Switch. This would likely be the main team project. 

I'd prefer Retro making the western-centric and mature games that Nintendo are unwilling to do but I have no problem with this rumor. In its current state, Star Fox is on a one-way trip to obscurity and needs a change: it focuses on a dying genre in rail-shooters, it hasn't had a good original game in more than 10 years and Nintendo is unwilling to do anything more than rehash Star Fox 64. Retro seems to be the king of breathing new life into Nintendo's 'B-franchises' so this may be the game (if true) that brings Star Fox back to its N64 glory days when it was on the cusp of being a marquee franchise.

Thats the part I have trouble believing. I was under the impression that Star Fox Zero bombed so hard that it probably killed the IP, yet we're apparently getting a spin-off? and only a few years later? 

Metroid: Other M didn't do to hot and that game side lined Metroid for near a decade. So why is Star Fox getting a spin-off and so soon?

On top of that we have the MIA F-Zero that everybody and their mother have been begging for only to get shown up by Mario Kart and apparently Star Fox.

If this is real, it might be the biggest market misread since Metroid Prime: Federation Force.

sounds more and more like Rare in the old times... which means one more game and they're pretty much dead.

I can see it, they had done the DKC series, so Diddy Kong Racing being rebooted would make sense in Nintendo's eyes, but Miyamoto probably suggested they use Star Fox characters instead as Nintendo doesn't own many of the DKR characters any longer and this project was likely starting up around the time Miyamoto was working on Star Fox 0.

It could also be the case where Star Fox was chosen as a result of Nintendo's development processes

I might be misremembering, but didn't Nintendo say they focus on the gameplay first and then build the world/setting of the game around that after and sometimes choose an existing IP for it if it works in that situation?

So it could have been the type of thing where Retro was just working on gameplay for a racing game and felt that the Star Fox IP best suited what they were making so they went with that.

I think, if true, we should at least give it a chance.

Remember Wind Waker, Metroid Prime, Mario + Rabbids, Wii, and DS? Those were initially thought of as worrisome ideas.

If Retro Studios is on it, then I think we should give them the benefit of the doubt. If this is really what they wanted to do, then by all means. We like companies who support their developers in doing what they want, right?

This just doesn't make much sense. Why not do an F-Zero game if they wanted to make a racer with a futuristic/sci-fi setting? Or why not do a proper reboot of Star Fox and do for it what they did for Metroid with Prime if they wanted to make a Star Fox game? And most of all, why on earth would it have taken them all these years just to make a Kart game? None of this adds up to me, so I can only hope this is fake.

I think they wanted to make Diddy Kong Racing, not F-Zero. But then they looked at the concept and thought "well we own all the Star Fox characters, maybe it makes sense to use Star Fox characters/setting". That's probably how it went down. 

That doesn't make sense either. If they wanted to make Diddy Kong Racing, then make Diddy Kong Racing. Star Fox is about as random of a choice as it gets for a racer.