Ugh. I have a much bigger problem with the word "magic" than I ever did with "nostalgia." Nintendo makes great games, yes, but there's no damn "magic." They're really polished, fun, engaging games. End of story.
Anyway, nostalgia becomes a problem when it prohibits the person from thinking logically, in the context where they're engaged in discussion with others. For example, it's objective that A Link Between Worlds, being a more modern game, controls smoother/better than A Link to the Past. It's also more accessible. Someone who is blinded by nostalgia would make the argument that "ALttP is superior in every way," which of course is objectively false. They're blinded because they had a really awesome time with ALttP (and I don't blame them, it's a freaking awesome game in its own right).
Liking something aesthetically (which is subjective) is no problem. Everyone has their preferences, and they should be respected. But failing to acknowledge things that are objectively better in more modern games, that's the "bad side" of nostalgia.
I love the soundtrack, atmosphere, and stories of the classic Resident Evils, but compared to modern REs, those classic ones look and control like shit. The modern ones objectively look and control better.