Actually, anyone who puts a pre-patched game on a cart and sells it is guilty of intellectual theft against the company responsible for releasing the original game. The only exception I can think of would be most ZX Spectrum games, as their community has already gone to great lengths to request copyright releases for all titles. Even the hardware is open to the community now.
Translation, under US copyright law, is permitted. In fact, the translation itself is your own intellectual property so you own its copyright. Despite what some companies will claim, reverse-engineering is permitted under the law within certain guidelines, and information obtained in this fashion can be used for derivitive works. You can't, obviously, make knockoffs of something patented without infringing on the patent, but you could make a design change that circumvents it.
Any code you write is effectively your own code. You can not prevent somebody from running code or interfacing with your own code. If that code was being used to commit a crime, such as identity theft, then they can cut your head off an nail it to a wall (metaphorically, not literally) but under any other circumstances they can neither prevent you from running it nor grab it up for themselves.
There is an issue that comes in play when you make a sequel of sorts, insofar as the properties in the game are still the original copyright holder's. For instance, dropping character from game A into game B is illegal without the permission of whoever owned that property. Parody is an exception to that, and certain companies are dicier than others.
Crimson Echoes skirted that to a degree; the characters were from the game that was patched, but they altered the sprite set significantly with derivative artwork. It's grey enough it would wind up getting discussed in a court case, but in the end it probably would have been a dropped point.
Soft-patching is 100% legal, thank you Galoob vs. Nintendo. Hardpatching a legally-obtained ROM is also perfectly acceptable, but we all know how many people DL them. Distribution, however, without the express premission of copyright holders is not. Giving credit does not work; you must have a release of copyright. I, for one, don't retain any rights to my own code, but I'm a bit of an exception to the rule.
Certainly, if you believe that hacking ROMs is not legal, patching hacked content onto a dumped ROM and burning that to a new cart can't be either.
Temporal Flux is a good example of this. It is not illegal to create ROM hacking software, nor alter said ROMs within legal bounds. The editor is dependant on a legally-obtained ROM, and any additional code is provided by the user. All data used for the editor is obtained through perfectly-legal reverse-engineering. That's why he never stood down.
Crimson Echoes was a bit greyer but would probably still be exonerated in court. The issue there is that the expense incurred defending their rights is restrictive. A large company with legals on-staff can weather that storm indefinately. The devs would have to countersue for expenses after already incuring some hefty debt. I don't blame them for just standing down. It isn't a battle of rights, but a monetary struggle in every sense.
There's quite a few cases for rom hackers selling their work to the original companies, spanning back all the way to the early arcade days. Atari had a great policy for this, and many of what we concider 'classic' Atari arcade games are actually hacks. The Stamper bros. who founded Rare caught Nintendo's eye with a game they developed by reverse-engineering the Famicom. A part of Battlefield 2's staff were scalped from the crew that made the Desert Combat mod for BF1, and they bought their code off them for helicopters in BF: Vietnam. It happens quite often, and you should be able to find plenty of other examples.
Square would have been much wiser to work with them and do a release for download. Any sticky points in the plot that might not work with planned titles could be ironed out.