I agree completely.
The company had got so fucking lucky. When so many PSX/Saturn small developers had gone bust, Silicon Knights had been picked up by Nintendo, the financially-secure highly-respected pillar of the industry.
They had funding, development time, experienced guidance, devkits, Nintendo resources, Nintendo marketing, and enjoyed an increasingly prestigious profile. With Nintendo's help, they nailed Eternal Darkness, and with Shigeru Miyamoto's personal recommendation, they were trusted with exclusive access to the high profile AAA Metal Gear franchise. Dyack and Nintendo were jointly-signing patents. There were talks of future collaborations with Kojima! Fans were naming them as potential Zelda developers. A sequel to Eternal Darkness was begged for! What more could they have hoped for?
And they left...?!
My God. What in the Hell were they thinking? Were the fancy graphics of the 360 really worth it?
Maybe Nintendo wanted wider creative control. If I were a company in that position I would not exactly be happy with a situation like that.
We will probably never know what really happened.