Just wanted to put my two cents in.
I have seen people make the argument on these forums that Project M cannot be shut down by Nintendo because it is a "transformative" work that falls under the legal definition of fair use as defined by the Copyright Act of 1976.
I won't claim to know everything about this subject, but I do know that fair use is usually a legitimate defense only in cases of parody or commentary/criticism. Project M is neither of these. Therefore, it is not protected by law.
Someone brought up Lewis Galoob Toys, Inc. v. Nintendo of America, Inc. This is more of a gray area. However, as I understand it, the court ruled in favor of Galoob in this case based on the fact that cheat codes are akin to skipping pages of a book or fast-forwarding thru a movie, and they do not create a derivative work by altering the content of the game itself. So, this unfortunately doesn't apply to our beloved game.
Likewise, Micro Star v. FormGen Inc. showed that adding new content to a game (user-created levels in Duke Nukem 3D) does, in fact, constitute as a derivative work and is therefore a form of copyright infringement. Based on these cases, I don't think that the PMBR would be able to do anything if Nintendo sent out a C&D.
As many others have said before, Nintendo is most likely aware of PM's existence at this point. The fact that they have not shut it down as of today does not mean that they never will. It just means that PM is not something they are concerned about at the moment because it is not negatively affecting their sales.
Also, the argument of "Nintendo won't shut down PM because it encourages more people to buy Brawl and Wiis" is not a solid one; Nintendo wanted to shut down Melee at EVO, even though one could argue that it would've been free advertisement for the Gamecube and Melee. Furthermore, Nintendo is focusing on the Wii U right now. They've ceased production of the Wii. They don't care about selling their last-gen system or more copies of a game that's been out for almost 6 years.
I love Project M. It's the only thing I play and the best goddamn game out there, as far as I'm concerned. But I think it would be a mistake for members of the community to just blindly assume that Nintendo has no legal ground to stand on. The 3.0 Trailer has surpassed 1/4 of a million views on YouTube, and PM is becoming fairly big and notable. Smash 4 is being released next year.
I think that everyone in the PM community needs to understand that our amazing game could be shut down by Nintendo if we give Nintendo a reason to want it shut down. That's why the PMBR does not profit from the game, and why post-Brawl clone engine characters aren't an option, etc. As a community, we simply need to tread lightly and avoid doing stupid **** like:
-tweeting or posting YouTube comments about Project M being awesome and Smash 4 being crap
-making Nintendo think that people won't buy Wii U's or Smash 4 because of PM or that PM is competition
-attracting negative publicity to PM
-talking about PM in any kind of Nintendo community, like that guy who got banned from Miiverse for posting about PM (and then proceeded to call Nintendo's Technical Staff and inform them about what PM is, just so that they would lift the two-week ban on his account)
Sorry for the long post. Got a bit carried away, I guess. This was a good distraction from my 8-page term paper.