Hmm. The one thing I was really looking forward to on the VC was playing the N64 games (played the older stuff to death and don't fancy stumping up cash to play yet again). After reading that I'm not even sure about the N64 stuff now.
Although if I don't hear about one of my pre-orders soon then it might not be a problem.
Of course, controller design preferences vary greatly from person to person, and mine include liking triggers over shoulder buttons, six face buttons over four, one trigger/shoulder button per side over two, and the upper position (where the analog stick is in the GC) for the analog over the lower (where it is in the Dual Shock)...
But even so, for people who do prefer the Dualshock to the N64 controller, I'd think that it would be understandable that games are designed for the controller that the system uses. While some N64 games are ports that could be remapped onto other controllers, not all are... for me of course I love the N64 controller so I generally prefer N64 controls, but... the N64 has a unique controller that is not easy to remap. While you could change it to a two-prong design by making L a shoulder button above Z (like on the GC pad) and Z a trigger more like the DC/Xbox (etc) controllers, and moving it to a standard analog stick (GC-style) from the N64's unique one (that I must admit does have the flaw of breaking down fairly quickly under use), I still cannot accept the loss of the trigger, the change from six face buttons to four, and the loss of rumble.
Look, N64 games will be playable. It's not idea, but you CAN play six-face-button games on a four-button pad. Ocarina of Time for GC is an example... while it's definitely not as good, it IS playable. The main issue is that one item is mapped to down on the right analog stick or Z in addition to the two acessible ones (on X and Y) the game just does not play right... not to mention how the GC's hard to press in shoulder buttons aren't as good for some uses as the N64's trigger was... as well as the annoying fact that you have to press up on the left analog stick to go into first person or call Navi? Awkward! That's not good... but it IS usable. So someone who doesn't have an N64 and doesn't want to get one could get these. It won't have the proper feel, and some games will be more affected than others, particularly games that use rumble (of which there are a lot; none require rumble, but many use it) or games that use the full six-button layout as buttons and not just camera controls, but they'll all be playable... they just won't be as good. Particularly, as I said, for people who have played the original N64 versions and know how the controls are supposed to work.
For instance, Zelda: OoT GC again... I enjoyed it, but one of the main things it made me want to do is go back and play the GC version... I just prefer to play it on the controller it was designed for, the N64 pad. I just think that it works better on it. Still though, if you don't want to buy an N64, some of these games will work... the first game, Mario 64, should function okay, for instance. It only uses C for the camera and has a pretty simple control scheme... the only concern for Mario 64 is how it maps the Z button, and that will depend both on if it allows you to remap the controls and if you use a CC or GC pad...
I'm sure I personally would still prefer it on the N64, because the N64 controller is maybe my favorite ever, but that's just me, I know.
... even so, after all that, I predict that I will eventually re-purchase a lot of the N64 games that I have for the VC once I have the money to do it, simply because it's easier to carry around a Wii than a boxful of cartridges, and they will be sitting there in the online store taunting me with "you know you love this game and want to buy it again for more money than you paid for your first (used copy of the cartridge)"...
Nintendo said that the VC could become a big revenue stream, and I can certainly see how that could happen.