If you’re accepting money somewhere, an LLC has potential advantages. It’s not an outlandish idea at all.

IANAL, but if there's a risk of being sued by a big corporation because you're making a product that they believe is stealing from them, wouldn't it make sense to shield yourself personally from being sued?

Like, if I write a piece of software that does something innocuous, such as indexing files or something, then I probably wouldn't bother getting any kind of LLC, but I'm very unlikely to get sued over that. Nintendo, however, is famously litigious, has made their stance on emulation very clear, and has no problem going after individuals who dare to defy them. I think doing all the development through an LLC can limit Nintendo going after the individuals.

Open Source doesn't necessarily mean free of charge, but even when it does (most of the time), plenty of people still choose to pay for open source products today (eg. Red Hat). A product being open source doesn't mean the people working on it shouldn't be paid somehow; in particular, Yuzu do early releases and other closed-source-ish things (which is one of the reasons Nintendo is able to bring something to court here).