At first, the bare fact that Capcom made the Oracle games instead of Nintendo is disturbing. It is tempting to dismiss the Oracle games outright, because, after all, "Nintendo was not involved." What makes the Oracle games any better than, say, the dumb CD-i games, or BS-Zelda? Surely the fact that they were made outside of Nintendo dismisses them altogether. This kind of attitude is based upon some misconceptions.
First, let's look at how Nintendo's games, and all previous Zelda games in particular, are made. I'm not an expert on the process, but I do know a fair amount about it. It goes something like this: Miyamoto is the producer. He's in charge of such projects as Mario and Zelda games. Miyamoto has a general idea of what he wants to see in the next Zelda game. Miyamoto, however, is only the leader of a team of programmers, artists, and writers. This "team" is not the same group of people in every game. Key members, such as Miyamoto and executive producer Yamauchi, are always on the team, but a good chunk of the team changes regularly. The higher-ups stay on, but the mass of grunt workers changes from time to time. So, all of the Zelda games collectively are not the work of one single team. They are the work of a team of professionals, many of whom have never before worked on a Zelda game, guided by the vision of people such as Miyamoto and Yamauchi.
Miyamoto gives his team a general outline of the things he wants to see in the Zelda game (such as time travel, or Link fighting Ganon, or Zelda being kidnapped), and gives his team the freedom to carry out his wishes however they'd like. The team does most of the grunt work, such as making models, art, music, and dialogue. Miyamoto reviews their work periodically, making sure that it is still in line with his vision, and guiding the team through tough spots. In the end, the game fits Miyamoto's general vision, but a lot of the details were put in by the team working for Nintendo. Miyamoto doesn't involve himself too much with the gameplay; he's more involved with the big picture, the storyline, and thinking of innovations to put in.
In earlier Zelda games, Miyamoto had a lot of control over what went into the Zelda games. More recently, Miyamoto has had a lot more faith in the ability of his team, and he is letting them do more and more with the Zelda games. Particularly in Majora's Mask, Miyamoto basically left the whole thing up to the team, and only reviewed it to see that things weren't getting out of hand.
Now, even more recently, Miyamoto and his team have been buried up to their necks in GameCube projects. From what I understand, Miyamoto is working on almost 5-7 games at once. So the situation is: the regular development team is up to their ears in work already. Nintendo wants to see more Zelda games, but their internal team just can't handle any more work. So why not hire an outside team to handle the load? Since Miyamoto and Yamauchi, as producers, can guide an outside team just as well as an internal team, why not let an outside team handle the grunt work that the internal team can't?
This is an oversimplification of the process, but it illustrates my point. The credits of Oracle list Miyamoto as the general producer and Yamauchi as the executive producer. The games were a joint production of Nintendo and Capcom. Since Nintendo, and Miyamoto especially, were involved in the development process, I'm perfectly willing to accept the Oracle games as canon.
An interview with Miyamoto and two members of the Oracle team sheds some more light on the development process. Apparently, the Capcom team wasn't doing too well and they sent an SOS to Miyamoto.
Capcom game director Yoshiki Okamoto: Mr. Miyamoto normally creates the game scenario (story and characters) after the initial game play is designed. If the action part of the game is solid, the scenario can be developed from there. We started by using the Capcom scenario creation company, Flag Ship, to create the scenario first. Then, we created maps and started developing the game. I don't believe that worked.
As you can see, it takes Miyamoto's magical touch to get anything done. You can read the full transcript of the interview here.
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