This sucks for the emluation community but it isn't surprising and isn't the end-of-the-world scenario that some people are making it out to be. The lawsuit isn't about emulation being illegal, even if Nintendo maintains the stance that it's illegal. There's very little in the lawsuit about the emulator itself or the process of emulation. It's mostly about the ways Yuzu may have promoted piracy or circumvented DRM. You can view the filings here:
https://www.courtlistener.com/docket/68284505/nintendo-of-america-inc-v-tropic-haze-llc/
Yuzu was playing with fire. They openly advertised emulation for a current, in-production console and had a Patreon pulling in notable amounts of money, at least compared to other emulation projects. The money spiked soon after the ToTK launch. They have openly advertised support for games at or soon after launch. None of that alone is illegal but it draws attention. There are reported cases of them claiming support for games before launch, beta builds supporting pre-launch leaked copies of games, and roms distributed through their Discord. Those would all be illegal or connected to something illegal if true. Some reddit threads claim that was all from users and outside devs, not officially from the Yuzu devs. I'll take both the reports and the reddit defense with a grain of salt. Chances are there's some truth to both. I'm guessing that Yuzu settled due to a mix of the likelihood the Yuzu team would damn themselves with something during discovery, because settling gets them out without having to admit any wrongdoing, and because Nintendo has much greater resources to see this through. I do not think that Nintendo's resources are the primary reason though.
Nintendo doesn't run around throwing out lawsuits all over the place without a thought. When they do seek legal action, it's carefully targeted and meant to send a message. Some of their specific claims might seem questionable, but they are within their rights to protect their properties and financial interest in whatever legal way they see fit. DMCA might be dumb but it is law, and it's unreasonable to not expect Nintendo to use it to their full advantage. Nintendo's business actions and legal claims don't always seem the most practical on the surface, but it's consistent and makes sense within the weird niche they've created. Their behavior here isn't new, and for that reason I don't think it's particularly worrisome for the rest of emulation. They aren't going to suddenly start hitting other emulators just because they can. They'll do it if it looks like the target could conflict with their current plans or if there's some possibility of commercial advertising or monetization.
Most emulator devs know not to do anything to grab Nintendo's attention. They work on previous gen or older, keep a low profile if working on current gen. It's hard for Nintendo to make claims of promoting piracy against a hobbyist emulator developer for a system no longer in production. It's also hard for an established business pulling in money on an emulator for a current console to make claims of game preservation.
Jeff Gerstmann had a good discussion on a lot of this almost a year ago on his podcast, around the time of the Dolphin/Steam thing.
Starts around 2h36m. Turns out he's not completely right about the Wii key in Dolphin. It is Nintendo IP but Dolphin does not exist primarily to circumvent protection so they aren't violating DMCA. Discussion from the Dolphin devs on their blog:
https://dolphin-emu.org/blog/2023/07/20/what-happened-to-dolphin-on-steam/
Their comfort with their legal standing is why I'm sure that Yuzu messed up somewhere with leaked materials or roms or encryption keys in a way that is explicitly illegal.
I'll just ask: any reason these emulators don't just keep getting distributed through torrents/pirate sites/etc even if the dev closes up shop?
Have to imagine there are plenty of functional .exes out there and sure some odd elements won't get patched (unless someone decides to pick up where the OG devs left off).
I'm not really an emulator person at all, but it's a bummer for the community.
The emulator is out there and there will still be ways to get it, but development on this particular emulator is likely dead for good.