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In the July 2006 issue of GamesMaster, a short interview with Miyamoto at E3 2006 reveals that Super Mario Galaxy is not necessarily Super Mario 128.GAMESMASTER: What inspired Super Mario Galaxy and what does it mean for Mario 128?MIYAMOTO: Well, Mario 128 was a collection of different experiments. Super Mario Galaxy takes a lot of the experiments from Mario 128 and implements them in the game. Because of that it's partly 128 but there are also elements that existed in Mario 128. I don't know when we'll be able to bring those out.What Miyamoto says here seems to explain that Mario 128 is not a game as such, but more like a project with which Miyamoto developed new innovations which Mario could use in his later games. This appears to leave us with the conclusion that we may never see Super Mario 128 in its finished form, but instead see Mario games in the future containing the concepts which were developed within the project, the first of these apparently being Galaxy.
Nintendo doesn't hate him. His 'unpopularity' is part of his charm. It's one of the things that makes everyone like him. We don't want another abused character like Shadow the Hedgehog, do we?
From Wikipedia's article on Super Mario 128: