Rare did make Perfect Dark but soon after that the core members of the G/Eye team and Perfect Dark team left because they felt that Rare as a company has lost its focus. The members left and have now formed Free Radicals, which were rushed into making Timesplitters to make the launch of the PS2. With Timesplitters II though they were given time to make the game they wanted to produce in the first place and you can see the G/Eye influences.
Rare has had massive internal re-structuring I've heard because of key members leaving and projects like Perfect Dark 0 not being worked on at all. It seems to me that Rare has lost quite a lot of its own talent and beliefs on what gaming should be like because it has grown too big, too soon. Which is why the key members left.
If Rare as a company becomes a 3rd Party then I don't think anyone could argue, but it if becomes a 2nd party to Microsoft then it would be a massive gain for Mr Gates. In a way it could be seen as Rare wanting to emulate Nintendo because a few years back Rare were thinking about releasing their own console with them at the helm. If the deal goes through (of which many have said it already has for 260 million plus) then they have one of the best hardware manufactures with 3D (nVidia), the cash (Microsoft) and the additional ties and bonuses of being a partner with Microsoft globally. All Rare would have to do is produce the software and all I can say is good luck to them.
Personally I was looking forward with Free Radicals Vs Rare fight and now things look like it will get more interesting indeed, since Rare does have a few franchises of its own (Battletoads, Conker, Jet Force Gemini, Perfect Dark etc) to exploit. I'm looking forward to Conker most of all though.
Nintendo I'm sure would like to block the move but they don't have the over-riding share percentage. If they do loose Rare then I'm sure Nintendo will get quite a few million since they own 25-49% of Rare, of which the money could be used in Fund Q or to expand their long list of 2nd Party developers with extra talent.