To be fair they really shouldn't have made it 1:1 to the original Zelda, or at least the first part since it wasn't finish, 3D or otherwise. Free or no it still very much infringes on copy rights in this case since it is 1:1 the Original Zelda in various ways. I can understand why they put up a cease and desist and the creators pretty much expected that it would happen sooner or later so they didn't take it so hard.
I mean yeah cease and desists aren't fun. However if they let something like this slide, even if it was free, it makes it harder to make a cease and desist when it really counts later down the road, and Nintendo or any company has a right to protect their IPs like this. It's harsh, but it's understandable why they did what they did, that's just the reality of the law.