Wow, didn't know that. Interesting.
It wasn't just Rare either. Age of Empires, Mech Assault and Blue Dragon are all MSFT owned franchises that appeared on the DS.
Blue Dragon Plus was co-developed by Brownie Brown as well, which was/is a Nintendo first party.
EDIT:
I maintain that it's pretty hard to not justify Nintendo's actions in all of it. They were definitely getting the short end of the stick with that deal, and since MS wasn't going to let Rare and 4J Studios work on an equivalent remake for the Wii, there was no real option for them to pursue other than calling the whole thing off. It would have been one thing if they were planning on doing more of a Banjo-Kazooie XBLA release for GE007, but this was decidedly not that.
Yeah, wasn't the offer a full remake on XBLA and a bog-standard VC release on Wii?