Even in a complete wild west, some people are going to do the right thing. Maybe even most people. Probably is far more a cultural issue than a legal or technical one. Still, I'm not arguing that 100% deregulation is a good idea, just that I don't really think this is a convincing argument.
It doesn't matter if you would, it matters if the general public would. And all you have to do is look to China, where more cracked copies of windows are sold every day than legitimate copies. The only reason that doesn't exist here is because it's almost impossible for the average consumer to buy a cracked copy. If they were available at every corner store the average person would make that choice 9 times out of 10. And if they'll take that risk on the entire OS, they won't bat an eye at a rom.
Then it all goes to heck because innovation just grinds to a halt.
To be precise, the argument goes like this: Star Fox 64 is not currently generating any economic benefit for Nintendo. It doesn't harm Nintendo for someone to make a derivative work of it. In fact, I'd be more than happy to cut a deal with Nintendo and just give them most of the money. The problem is that no one tries to do this, and we all lose what could have been made.