what they could do with actual up to date hardware?

It's honestly hard to tell, given their history. When they first got 3D hardware, their first attempts resulted in a literal revolution in game design, with Super Mario 64 and Ocarina of Time changing how 3D games would look and control from that point onwards.

Their first time getting access to HD hardware? They didn't have the experience and tools to design HD assets, which delayed pretty much all internal projects and resulted in several drought periods that helped kill the Wii U.

So if the Switch 2 suddenly had much better hardware... Would Nintendo make the most beautiful game you've ever seen, or would they stumble around and ship yet another booster pack to Mario Kart 8 with barely improved graphics? Would they struggle with balancing realistic ray tracing with their cartoony look? Hard to tell.