With game modding or decompilation, a lot of people do stuff that's probably illegal but whoever owns the rights doesn't care so they do it anyway. Microsoft is fairly hands off with old stuff like this that doesn't do any material damage to their bottom line. For a more serious example, the full leaked source code to Windows NT 4 and XP has been on Microsoft-owned Github for ages and they haven't bothered taking it down, probably because those versions have been out of support for over 10 years at this point.

You can see on this thread that the original developers of Space Cadet Pinball think this is a neat project so I don't see anything morally wrong either.