AM2R for example was distributed for free and DMCA-ed.

I think they killed it because they were planning on showing off their own remake

I think there are 3 rules to avoid getting the ninjas sent after you:

1) Don't try and make money 2) Don't do anything nintendo would realistically do 3) Don't touch mario. This one seems to be the most important. I see mario projects get killed all the time very early on in development, while am2r was allowed to exist until nintendo exercised rule number 2. I imagine the mother/earthbound fan works/translations will also be left alone if nintendo chooses to never touch that series again

I feel like a toxic part of this cycle is that a successful fan project has the potential to actually inspire Nintendo to attempt to do the same thing, leading to #2 as a punishment for success.

I agree, though 2 seems pretty tricky to navigate/predict. For example I wouldn't have guessed Advanced Wars would get a new release after Days of Ruin, or with Earthbound I could maybe see Mother 3 finally getting a US release with how popular Undertale/Deltarune has been. Maybe the best option is to be as under the radar as possible until it's done and out.

I can almost guarantee mother 3 will never get an official translation. At most, I can see them giving the existing fan translation their official endorsement and releasing the patched version on switch online or something. The only reason earthbound beginnings got published eventually was because they had already translated it and planned to release it in the west but never ended up doing so