Plenty of shitty shovelware on the NES. He didn't care if there were shit games on Nintendo consoles, as long as the third-party developers kowtowed. That attitude is what took Nintendo from market leaders to a very distant second as the TPDs went to Playstation and told Nintendo to go fuck themselves. And they've been telling Nintendo to go fuck themselves ever since.
That attitude from Yamauchi is what made the N64 a failure, what made the Gamecube an even bigger failure, and what's making the Wii U and even bigger failure still. Overnight, Nintendo went from being the kings of home gaming, to total obscurity (unless you think the Wii was anything other than a Billy Bass Fish moment).
They get away with it on handhelds, because the DS is like the NES: no real competition. If someone makes a console that does for handhelds what the Playstation did for the N64, then Nintendo are finished there, too. Then they'll be reduced to releasing Zelda and Mario clones for other companies' systems, and they can get used to being treated as Nintendo themselves treated TPDs back in the 80s.