The game itself is not the problem. The game here is more like an asset, think of Microsoft Word (emulator), vs a .doc (game) file.
Again, they wrapped the EMULATOR, a GPLv3 emulator in a DRM wrapper.
You can't even distribute GPLv3 software in most walled garden type online outlets (not sure about steam)
We update the GPL to protect its copyleft from being undermined by legal or technological developments. The most recent version protects users from three recent threats:
Tivoization: Some companies have created various different kinds of devices that run GPLed software, and then rigged the hardware so that they can change the software that's running, but you cannot. If a device can run arbitrary software, it's a general-purpose computer, and its owner should control what it does. When a device thwarts you from doing that, we call that tivoization.
Laws prohibiting free software: Legislation like the Digital Millennium Copyright Act and the European Union Copyright Directive make it a crime to write or share software that can break DRM (Digital Restrictions Management; see below). These laws should not interfere with the rights the GPL grants you.
Discriminatory patent deals: Microsoft has recently started telling people that they will not sue free software users for patent infringement—as long as you get the software from a vendor that's paying Microsoft for the privilege. Ultimately, Microsoft is trying to collect royalties for the use of free software, which interferes with users' freedom. No company should be able to do this.
From the quick guide to GPLv3
They can do whatever they want to the game, release for free or throw it out of the window, makes no difference whatsoever. The problem is not the game, is the emulator
Yes they are releasing the **incomplete** source code which is a step in the right direction but I don't think they can ever be fully compliant... not that it will make any difference, noone will sue or do anything on the legal road because that requires money and motivation. Many emudevs are just 'meh' about these issues. That doesn't mean it's alright.