At the end of the day though, they don't really have to change: Fan projects are such a niche thing that Nintendo going after them isn't going to cause any harm to themselves in any meaningful way. Most people don't even know these things exist; People playing ROM hacks and Smash mods are the super niche hardcore fans, and Nintendo could care less what those fans have to say TBH 'cause they don't make up the bigger piece of the pie.
If it doesn't hurt their over all sales or reputation as a company, then Nintendo doesn't really care. Legally, they're allowed to do whatever the heck they want to anything that contains their IP, and they don't like people touching their stuff. On the one hand, I can understand where they're coming from: If I made something even half as popular as Mario, heck no I wouldn't want just anyone doing whatever the heck they wanted with it, but on the same token, I don't know if I support just wildly swinging at anyone who looks at you funny either.
That's the trickiest part of it, though: In order to protect their copyright, they cannot officially endorse fan projects like Project M even if they wanted to. Best case scenario is they could take Sega and Capcom's of "Because copyright is really weird in the modern digital age, we know you do this, but in order to protect our copyright, we can't acknowledge it. Don't step on our toes and we won't step on yours.", but even with that it's a very slippery slope.
I personally think Nintendo goes overboard on protection of their IP, but on the same token, protecting one's intellectual property is an important thing to do and a lack of any control whatsoever doesn't lead to good things. In a perfect world, there'd be a compromise, but it is what it is.
