Every once and a while Miyamoto will out think himself. I think he was trying to support / smooth the transition from 2D side-scrolling where the D-Pad was a known interface to the 3D world where the analog stick was a necessity.
But then they shipped with Mario 64 and no one gave a second thought to the D-Pad.
And yeah, I was harsh on the OG iPhone. It's hard being a new design.
I don't think it's so much that they shipped with Mario 64 as that all the games that made more sense to use a dpad for wound up on the playstation instead, which didn't originally ship with any kind of 3d control stick at all.
Nintendo dove deep into 3d on the n64 and they knew they were going to, but they put the dpad there assuming they'd be as successful as they were with the snes and there'd be a much wider diversity of game types for the platform.
Really though I don't think the design is really much of a mystery and I always wonder how the people confused by it tried to hold it. Did they try to grip the outer handle and reach in to the stick or something? It was never unobvious to me how to hold it or why they did it that way.
Personally I'd rather play 3d games with the n64 controller than the dual shock/analog, in terms of layout, just because the stick is in (one of the) primary position. Modern controllers with stick primary and dpad secondary and two grips are, to me, superior to either for 3d games though.
But then they shipped with Mario 64 and no one gave a second thought to the D-Pad.
And yeah, I was harsh on the OG iPhone. It's hard being a new design.