As some already suggested, instead of GKC, Nintendo should have gone with cheap and slow cards that require installation into the internal storage (just like PS5's Bluray). Not playing directly from the card won't be as frowned upon as GKC, how can anyone disagree with this? It's literally how the PS4/5 work.

So they'd have two options:
1. Game Cards (expensive highspeed cards that don't require install).
2. Install Game Cards (cheap cards that require an install, but unlike GKC, they have the full game data in them).

At what point does that become just "performative" physical though? Because you won't be able to actually play the game off the cartridge, on the Playstation 5 something like only 3% of their revenue are now physical games, likely in part because people know the disc is effectively useless. Obviously PC went digital only ages ago, devices like Steam Deck are digital only too. 

In the Nintendo ecosystem people still think they can run games off the cartridge and it operates just the same as internal storage or flash RAM, but that wouldn't be the case any longer. 

At that point, does it really matter if you're transferring data from a slow cartridge or just downloading the same exact data from your internet connection? You're doing the same thing either way, just transferring data onto the internal storage or SD Cards. 

For developers to go out of their way and make physical only for Nintendo platforms and then asking them to take $16 less per physical copy is just something that is not going to fly with a lot of developers. They got a lot on their plate as is and a lot of other platforms to deal with first, a lot of them simply don't want to deal with like taking a substantially lower amount on a sale on a Nintendo platform. 

I would've killed to have the option of downloadable games + internal storage back in the N64 days, it could've opened the door up to games like Resident Evil 1 and 3, Street Fighter Alpha 2, Metal Gear Solid and probably hundreds of other games to be feasible on the system back then but it wasn't viable and we were stuck with those shitty cartridges that crippled the system's library and led to long droughts of software (not to mention $70+ games which would be like $130+ today). Nintendo fans of today are lucky there are much better and much cheaper distribution options today, believe me the N64 era sucked and the system was massively held back from hundreds of games it could have otherwise ran because of the stupid cartridge format. Believe me all this "times today suck as a consumer!", lol, a lot of y'all who were too young to remember or not around period would be in for a rude awakening in the 90s. $70 USD in 1996 factoring in inflation is like $140 today! Imagine paying that for Star Wars Shadows of the Empire (I did) or Killer Instinct Gold (I did). The past is not always better. 

That is true, but both still suffer two problems.

1. Storage is very limited. The Switch 2 needs more storage as 256 gb isn't enough. Doesn't help that the micro SD express cards required right now only go up to 1 TB, which still wouldn't be enough.

2. The cost of carts. Even if Nintendo gave that option publishers were avoiding the 32 GB Switch 1 cards even to this day. Only like 16 games used that card (few were from Nintendo). So if they offered a 64 GB and 128 GB Switch 1 option (and 128 GB Switch 2) I still don't see publishers using them.

It's very unfortunate, but either way I just do not see publishers using 32 gb, 64, gb, and 128 gb cards (Switch 1 or Switch 2).

Side Note: If publishers were avoiding 32 gb Switch 1 cards what makes people think they won't avoid a Switch 2 32 gb card that would cost more?

Honestly, I forgot about the question til I reached end of your (whole) post.

To answer it now, I have no idea why Marvelous did it, but CDRP had a game that, while needed fine-tune porting, was fairly old and fully patched, so porting shouldn't cost that much, a game that was THE showcase of Switch 2 capabilities at launch, so pretty much guaranteed sales at full price, and, what I'm assuming, maybe even some sort of a deal on game carts due to previous reason.

Nintendo has Game Cart(ridge), Digital and "Code-in-a-box, but on cart" Digital. GKC is solely on them for even offering it in the first place as third option.

Instead of GKC, proposed Game Install Cart that serves as "Game Disk" would be something that's in line with what customers expect from such physical format, a physical delivery format that indeed needs install, just like with other consoles, but physical no less.

Current Game Cart(ridge) would be premium option that offers more value than Game Install Cart and Game Disks, thus higher price.

At the point when the game doesn't work with just the cartridge. Currently almost all physical PS5/SeriesX games work with just the disc and no day one patch. This would be no different. 

Just some more context on that point

"A more apt comparison is that physical software accounted for 24% of unit sales. While this is still a low %, it still means 73 million physical games were sold during the year."

This is on Playstation, Nintendo would be even higher probs around 40%. Thats almost half of revenue.

I presume most people are just leaving physical because digital is more convenient (like me), can be extremely cheap on PSN sales (not so much on the eshop) and also digital game sharing (which Nintendo just put an end to annoyingly, hopefully others don't get inspired by them lol)