It depends on the person I guess. Making your own completely original game is fun too. Kinda depends on your "mood". Basing it off a popular IP brings a lot more attention to your project though. And since it's just a hobby and not for money, the fan support and comments are sometimes the driving force the game. (This is partly why these games are announced before their finished, to GAF's dismay lol. I doubt I would've had to will to finish my games without the comments and fan support.)
I haven't played/looked at the game but I assume the sprites are from Metroid right? Probably with edits I would wager. Most people use spriters-resource.com
I'm not sure about the sprites, I've only seen a few shots of it but I thought they were new.
Yeah I suppose it really does come down to the individual. It pretty much comes down to the fact this sort of thing can't be left alone because it sets a legal precedence of the IP not being protected. By itself it's probably not going to harm Ninty, or at least harm them much, but it has to at least have a record of being snuffed out.
Having said that I personally don't have an issue with it existing and we all know once something hits the internet, it's never going away. It will exist underground forever because Nintendo let it come to light and isn't suing anyone. At the end of the day everyone gets what they want so I don't really see a big issue.
If they killed it while it was still in the oven or sued the dev behind it, it would be a different story though.
Also I never quite got why these are announced in advance but that sheds light on it and I get it now.