Valve has stated that they are okay with people making mods using their property, as long as they either openly state that they are not Valve, and do not use Valves IP in their names unless they ask for permission by Valve, which they will give in many cases. They are more strict when it comes to commercial games using their IP, of course. I think in the case of Portal 64 though, it definitely has to do with Nintendo’s ridiculously over the top protection of their copyrights.