We wouldn't be able to mate with Nakalipithecus nakayamai, so they are indeed a distinct species despite being our ancestor.

By this criterion, there are very, very few bacterial species.

I seem to recall this being the reason the sexual reproduction definition of species is considered problematic. It's a convenient definition for animals but breaks down for most other things, and even the animal kingdom has some funky edge cases, like the https://en.wikipedia.org/wiki/Zebroid.

Or rather, each bacterium is its own species?

Why? Bacteria exchange DNA with each other.