Tyrone is excessively uncommunicative.
I talk to tyrone all the time on AIM, he's a nice guy (and gave me a free copy of cave story)
I don't know him personally and my attempts to ask questions regarding Night Game have dead-ended.
googoogjoob-Many developers are now moving onto console exclusive titles, simply because the pc piracy scene has gone overboard. Night Game as a wii/pc title of equal quality might, in a publisher's mind, see its sales cut by massive 'free' distribution on warez sites.
At some point, a business model where you work for free all the time will tend to make you and your family go hungry. If you want to play Night Game, buy it on the wii. If you don't have a wii, tough luck

(I don't have a wii either so...) You might call it 'selling out and compromising artistic integrity', I call it 'getting responsible and boring'.
I don't mind that Nifflas is working on a Wii-exclusive game. (Actually, I think that's pretty cool that Nifflas will get more exposure.) I mind that the game had been in development for over a year before anyone said anything about it being Wii-exclusive, and that during that year, everyone had (reasonably) assumed the game was going to be on PC as well; and that following the announcement Nifflas felt obliged to apologize for the decision.
Can you be more specific?
I don't think specific aspects of contracts should necessarily be illegal because that would restrict everyone's freedom to make deals unnecessarily.
They are free to go and create more games if they like. Perhaps they signed away their game IP to Nicalis - in that case if they are upset with the job being done it is relatively easy for them to walk out the door and create their next great game on their own. If you are aware of Nicklas having signed a contract that says he cannot quit his job at Nicalis, I would say that you should report this to the authorities as that is definitely illegal.
As far as I know, Nifflas doesn't have a job at Nicalis beyond making Night Game for them. (I have no idea if/how he is paid- if it's treated like a Nicalis project which Nifflas is paid for working on, or if it's treated like a Nifflas project that Nicalis has bought from him to publish.) He certainly isn't required to make more games for them- he made Saira independent of Nicalis and it's self-published rather than published by Nicalis.
Art is in the execution, not where it can be viewed. Night Game will likely be a better game than Nicklas could ever have created alone.
The trick is that Nifflas was working on Night Game (with Chris Schlarb) for several months before Nicalis became involved with the project.
Nifflas is the developer, and it seems to be that he is in full control of developing the game. Nicalis is the publisher, and it looks like they're in full control of publishing the game. What is the problem with this?
The problem is that Nicalis owns the game itself, rather than having licensed it for publishing, and that this might become problematic in the future. (Like how Paul McCartney only owns two Beatles songs.)
This entire conspiracy theory relies on the assumption that Pixel and Nifflas are simultaneously creative geniuses, who have made some of the great works of our time, and at the same time drooling simpletons incapable of signing and understanding a contract or making even the simplest of business decisions that any rational adult makes every day.
Rational adults don't sell intellectual property every day, and Nifflas at least hadn't sold any of his games to a development/publishing company before.