Well, there is nothing in the end-user license agreement that stipulates that modding Bawl is in any way illegal, so one can assume that Nintendo is not likely to attack anyone on the pretense of playing a mod.
There is a distinction to be made between piracy and modding, which are two different animals. Contrary to pirates, we do not provide an illegal means to procure yourself the Brawl data, but only provide additional patch files and user-made content for free. We make no profit from the game and the few donations we received went toward either getting the game known better or improving modding equipment. Not to mention that we didn't specifically ask for donations. We don't sell the game, and will never consider doing so as we do this for both your enjoyment and our own.
We take special care in respecting Nintendo, Sega and Konami's content and not put its characters in a negative light. In fact, in balancing them, you cold say we're doing just the opposite.
Furthermore, if Nintendo was going to do something about Project M, you'd think they would have done it by now. There's just no way that they are not aware of the existence of this mod by now and you'd think they'd target us before going after tournament officials.
Nintendo Sega and Konami are also very lax with fan work. Sega encourages it, while Konami tends to leave it alone. Nintendo also only seems to step up when money is involved.
Also, we are technically helping Brawl sell. Individuals buy Brawl to play Project M, which is technically giving them revenue they would have have gotten without our help. It also reinvigorated the interest of many gamers into getting a Wii, which means increased console sales.
I want to be positive about the future of Project M, and I'm quite confident that this game deserves to be a tournament staple (it seems to be going that direction already). While I do not always agree with every opinion of every PMBR member (we are a lot of passionate people, we're bound to butt heads at some points), I can safely say that every single one of them is driven by the desire to get an exciting and varied tournament experience, and in the end, we will have made something we can be proud of. We will settle for nothing less.
Of course, to make this dream a reality, it's up to the players to lend us a hand. The power of word of mouth is strong. When I look at the stats for demo downloads, I attribute the success of this mod to several causes. One if them is the help of media outlets like IGN, Kotaku, etc... The other is help from you guys, communities like Smashboards who keep spreading the word. Please keep supporting us as you have been.