— there's a common misconception that not making a profit means you don't have to worry about copyright violation, that's simply not true.
I definitely have heard of Nintendo being OK with fan-games, however all it takes is them deciding they don't want your game out there and there's nothing you can do.
How do you know that the C&D reports are fake? This isn't nintendo, but I remember one major story where a fairly large scale mlp smash game was cancelled due to a C&D.
Tetriser I played Brawl very casually with friends, I typically played Kirby