How do they know that it won't get to a point where it affects others who aren't hacking more so then it already has? I've seen videos of people being permanently WarioMan and Gigabowser.
That's the "slippery slope" fallacy. There's no real evidence indicating a significant detrimental increase in gameplay-altering activity.
But to allow for the distinction, it's a very simple situation to handle: if someone is affecting gameplay on Basic Brawls or anything that doesn't require a friend code, ban them. This is because they are capable of affecting someone else without their consent, with no possible repercussions on their part.
If someone is doing any hacking on With Friends matches, leave them alone. This is because the exchange of friend codes is an implicit agreement for one. The fact that most of the more popular and commonly-used codes either need to be used by both parties or have no affect on the gameplay is another reason. Finally, if codes are employed without the other person's consent and the other person disapproves, he is free to erase that person's friend code and is therefore no longer affected.
If car companies knew who would use their vehicles for crimes, do you think they would still sell them the vehicle? A bit of an extreme example, but same principal.
Yes, but how far should that principle extend? Should everyone require a criminal background check and government profile in order to buy a car? Do you feel like their car should be repossessed if they happened to have committed a crime while in possession of the vehicle? There is a certain point in which the consumer should have some leeway with the product; if not for legal reason or moral ones, then simply for practical ones. It takes time, effort, and often money to go around policing the things you sell. The end result is NOT worth the investment.
And that's another thing. Let's lay this out on the line for a second. Nintendo, bottom line, end-of-story, written-in-stone...
CAN'T win this war. Period. I mean this. They can't. It will not ****ing happen, I will bet every cent I have on that pony. There is no perfect lock, either in literal terms or electronic terms. In the end, hackers will ALWAYS find a way around precautionary measures in order to do what they want to do with the product they own. You simply can't stop them. Sony has been trying it for nearly a decade now, and is no closer at this point than they were when they started. And - sad but true - Sony is a lot more experienced and talented at it than Nintendo ever will be.
So, the entire stand they're taking is totally impractical, even disregarding every other single issue on the subject.
And it doesn't matter if it's "douchebag" like or not: still their right and it is what they have decided to do. No amount of whining is going to change it.
As long as we're acknowledging that what they're doing is stupid, wrong, and unnecessary, I'll certainly concede this point.