This is excellent news and looks like the lawsuit may possibly be good to drop.
Honestly, I don't think fear of the lawsuit itself had anything to do with it. It seemed rather frivolous.
More like there was a sudden critical mass of bad publicity about the issue thanks to the Switch Lite. The lawsuit was merely a part of the noise, not fear of losing it.
There's no doubt about that. The entire point of the lawsuit in general was just to bring emphasis to the situation, to add to the noise as you called it. Nintendo would've easily won that battle, but they would've lost the war as a result. Thanks to the lawsuit, and just how much of the Internet and gaming communities in general is buzzing about the drift issue, Nintendo was at risk of the Switch being forever remembered for drift.
Now that they're fixing it for free, though, that's going to help, and if they put a permanent fix (or at least a better design) in place, it should prevent drift from being anything more than a side-note in the Switch's history.