I mean, they could just literally use FSR3, lol.
If Xenoblade 4 runs at 20 FPS and using FSR3 can bring it up to 30 without being horrible... Maybe.
Yeah you're correct, but I think Nvidia probably wouldn't want DLSS upstaged like that. I'm pretty sure they can maybe make a custom solution for the Switch 2.
The reason I think they don't want to do it for their PC cards is because they want to be able to say frame generation is only for 40 series or better Nvidia cards so you better buy the newest card (there's a sales variable at play). But for Switch 2, since that isn't really a concern maybe they can do the whole "oh look, actually we can do a kind of a frame generation using this custom Nvidia chip that's only in Switch 2 consoles!".
The other thing I've wondered is if Nintendo themselves may not be using actual DLSS, but something that's basically almost the same as DLSS just under their own name (for future compatibility issues). So maybe Nintendo isn't bound to some of these rules and can say "hey, well we're using our own version of DLSS as is, lets study what AMD has done with FSR and maybe we can implement some of these frame generation features too". Nintendo did file a patent for their own form of upscaling ala DLSS.