Poor Banjo and Kazooie. Two amazing N64 games, cameo in another amazing N64 game, considered for the original Smash, but unfortunately dropped. Then came the selling of Rare, and with it the cancellation of Banjo-Threeie, and the release of two very "meh" Gameboy Advance games (which, of course, I still played and loved for the characters alone).
And then they became racing stars. Don't get me wrong, I thought Nuts & Bolts was a fantastic game, but it wasn't... Banjo-Kazooie. And then, as if to further cement their fate, they appear in the 360 version of Sonic and Sega All-Star Racing. 3 Platforming appearances, and 4 racing ones. I hadn't given up hope yet, though... until their 8th appearance. Kinect Sports Rivals. As DLC.
I agree with the sentiment but your facts aren't entirely sound.
First of all, Banjo and Kazooie did not cameo in Diddy Kong Racing. Both Banjo and Conker were introduced in that game so that they would be familiar to players before they starred elsewhere, with Kazooie nowhere to be seen. Also of note is the first appearance of Tiptup, a recurring character in many Rare games. This was almost certainly why the were roped into being Sega allstars, to try and cash in on the success of Banjo's origins. Banjo and Kazooie never "became" racing stars, they were from the start.
Secondly, the GBA games. Grunty's Revenge was a gem and the best thing on the GBA, while Banjo Pilot was a last minute rebranding similar to what happened with Dinosaur Planet. It was originally intended to be a handheld motion controlled companion to Donkey Kong Racing, Diddy Kong Racing's Gamecube sequel (Nintendo really wanted to push the link cable) but, when the Microsoft buy up occurred and they lost the rights to the Donkey Kong franchise, Rare rushed it out using their most iconic remaining franchise and the GBA tilt cartridge was set aside until WarioWare: Twisted got hold of the technology. I therefore like to blame Microsoft for Wario's decent into mindless minigames but, chances are, the WarioWare series would have taken off regardless.
Thirdly, Banjo Threeie. This sequel was not shelved with the Microsoft buy up as many believe. Its production continued for a good long time but was slowed by the number of other projects Microsoft forced upon the company and, throughout the process, Rare (or atleast what remained of them after Microsoft made changes to the company) got a good look at the modern gaming world and decided that it didn't want another Banjo Kazooie. Apparently fans were sick of the formula and wanted something new, something with major customization potential and something with masses of driving. The company has been documented as having outright said as much. Of course, they never actually asked their fans about this.
Then there's all the assets from Banjo Threeie, where did they go? Well, many theorise that the vast, empty overworlds of Nuts and Bolts were infact intended to be the populated worlds of a traditional collectathon entry into the series. Nothing can be proven but the design elements do fit.
In my opinion, the only good that could have come of Microsoft buying the company, and with it the series, was that they now had a mascot for crossovers. Where they previously had to resort to comic book characters for console exclusives, they could now have Banjo. Just imagine the bear and bird squaring off against the likes of Nightmare and Yoshimitsu in Soul Calibur 4. Finally, the Xbox had a reason for being!
But then the console exclusive characters were announced and who did they pick? Yoda. Seriously? Banjo was farfetched, sure, but Yoda was visually and thematically out of place, wielded an energy blade that could cut through metal like butter (see episode 1), required new game mechanics to work at all and broke the mechanics that already existed (dude has no high zone hitbox). I was gutted.
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