They were actually going to, under the working title Super Mario 128, before it was canceled. But it was going to be made for the also-canceled Nintendo 64DD console. That and if I remember right, gaming technology wasn't advanced enough for what they had envisioned for the project anyway. Though aspects of what they had planned for Super Mario 128 were recycled into Pikmin, Metroid Prime, The Legend of Zelda: Twilight Princess and Super Mario Galaxy.
@Ducky 64DD did actually release in Japan, but the Western release was cancelled. It gave the N64 an operating system and SimCity 64, which was basically SimCity 2000 in full 3D, but with a controller.
The 64DD got the Mario Artist series, and one of the games in the series even included a damn video capture card for the Nintendo 64!
