Sweet find, but there's no way that's legal, is it? They've gotta be banking on the fact that it's an old game and not worth suing over. I mean, if someone made an open-source copy of New Super Mario Bros and distributed it for free, Nintendo would have a fit.
It most definitely is legal, provided they don't use any of the original code or data. If you paint a picture of a horse, and then I see that and paint a picture of a similar horse, we've both created two different works.
There have been a lot of remakes over the years, nearly all of which have been entirely legal. Some have gotten into a bit of legitimate trouble over trademarks, but just changing the name (see the unofficial KQ9:TSL for an example of trademark problems) makes those go away. Others are questionably legal because they rely on hacks, things like complete remakes of SNES games: see Chrono Trigger: Crimson Echos for example. Crimson Echos was recently leaked to the internet, by the way, against Square-Enix's wishes. I suggest you check it out.
Finally, a lot of remakes are in no way infringing upon the original: they use none of the original data, none of the original code, and are frequently mere homages to the original. Many of these get released, but a disturbing number are hit with cease and desist letters which, if contested, would not hold up. See the recent Streets of Rage Remake for an example. Unfortunately, big companies with lots of money can afford to draft up CnD letters while little teams of fans can't usually afford to fight them.
The hope with the Privateer remake is not that it is too small to sue over, for it is not in any way illegal. Maybe they have to change the name, but everyone will know it's a Privateer homage anyway. No, the hope is that Origin (or whoever currently owns the rights) doesn't send a contestable CnD which they can't afford to contest.
