I think people are missing the fact that most fanmade content that Valve has historically been ok with is all original material. Black Mesa, Portal Stories, and others all used the Valve IP but were all original content. This port actually uses Valve-created content so, regardless of Nintendo’s involvement (although it makes the demand for this action stronger), they legally have to enforce it or risk losing the legal protections for that property.
Nintendo just gave them a convenient way to stop it before they needed to do it anyways.
I don't think thats how it works for copyright. You have to defend your trademarks to keep them but for copyright, you can decide who can use it rather arbitralily.
Especially allowing a release of an old game on platform you don't support which would not really compete with you.
It’s not about whether it competes. It’s about whether a “reasonable person” could confuse it for being an authorized product of the IP owner. In this case, people could confuse it with both a licensed Nintendo product (since it runs on original hardware) and it could be confused with an official Valve release (since the content is an exact (as possible) recreation of the levels and assets from the original game.
So you are clearly talking about trademark. A game design can't be trademarked. Only the name. Yes, if the name could be confused, that could be an issue. Maybe the cover art to some extent, if it is trademarked.
But if the game origin can be confused, so what? No law against that.