I write fan-fiction (mostly Mario); heck, I have a website for it. I don't usually call or think of my creations as "fan fiction", though, because that's too general a term. I follow many rules when writing, but the foremost is "Make all creations compatible with the games". I don't make Mario swear, speek like thiz, or...something with Peach, and I usually stay away from the plots of existing games to avoid interfering with anything (the only exception to that last rule is my story on this board). I consider my work a way to congratulate Nintendo/whatever company for their amazing work, and I always strive to produce high-quality, entertaining, and original work; I never write about Mario saving the princess from Bowser, because honestly, who wants to read about that when you can play 10 different Mario games for it? I think people who don't like fan fiction (for any reason) should just try reading some of the better stuff out there, because not all fan fiction is about characters randomly kissing, killing each other, and such...Hating something just because it's what it is isn't a good way to think.
My concept of fan fiction has changed throughout my time writing it, however. Many of my early characters were clones, but now I try to avoid them unless they're necessary for a plot element or such. I also had a more bouncy, childish way of writing when I started, but now I aim my writing for a teen/young adult audience. It's more intense than what you would see in an actual Mario game, but I try not to butcher the Mario concept, especially considering my foremost rule above. I bascially try to give Mario a more mature edge without doing any of what they did in Shadow the Hedgehog (cough).
I respect the original company's rights. That's why I don't want to make my aforementioned story an actual game; it's a direct sequel to SPM and actually making that sort of game would be a bit too bold for my tastes. It's the boldest attempt I've made even in writing, in fact, and that's probably farther than I'll ever go with future works. Not everything was meant to have fan fiction based upon it. Video games are suitable for it because they (usually) have open plots that you can develop any way you like.