Man, that is such a dick move! Makes me happy the PS1 went on the demolish the 64.
The way the book describes the agreement it was pretty far in Sony's favor, if I remember correctly it described the contact as being one that had a loosely binding structure so details could be changed later.
Realistically Nintendo probably should have met with Sony to renegotiate the contract. What they ended up doing IMO was reprehensible though.
As you said it cost them the next generation, probably the one after it and it additionally has repercussions which they continue to feel to this day. They literally took an ally and made them into thier own worst enemy and indirectly got Microsoft involved as well (They entered the market to oppose Sony).
It also resulted in the ridiculous Zelda games and the Mario one people love mocking.
Arguably it's the worst decision the company ever made, and it's hard to feel bad for them considering it's the result of a malicious act toward a business partner.