They also are not permitted to bypass, enable, or decrypt any part of a content control system - even one as simple as ROT13. In fact, decrypting and format shifting (from cartridge or CD to storage, for example) without explicit permission is actually an infringing act, BUT it is not prohibited in certain special cases (known as “fair use”) and if you are taken to court you can attempt to prove that your use was Fair under one or more of the legal sections dedicated to it. You are still infringing, but it is not illegal and there is no penalty for doing so. That is, as I state above, and very fine point in the law that is fun to argue but ultimately is just a die roll as to whether what you’re doing produces enough smoke to get you targeted by content owners. Because if you get caught, you’re probably going to lose - either directly, or your life savings in legal fees to prove your use was fair, and courts rarely award fees back to the defendant in these cases. (IANAL, but I have done work in performance rights, and worked with an IP lawyer in the business to ensure that everything we did was legal and defensible)

but if they use any code from the actual system, it’s illegal.

Actually, this is not the case. DMCA allows some amount on code to be duplicated, just not the whole thing. You’re not allowed to copy everything, but copying some code is allowed.

Also, the encryption key that was copied in Dolphin is just a random string of letters and numbers. That’s not copywritable, so no copyright infringement happened from including that in the software, regardless of what Nintendo claimed