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I think I am a bit biased against this game because everything I've seen of it (and I've even played that demo) just didn't speak to me. But while I wouldn't say this is tasteless or tactless, it does rub me the wrong way. I love it when I see tributes in games where Iwata had a personal hand in and where the developers personally knew him, but I highly doubt that is the case with the developers on this game.
And it's a literal grave in this game, and it refers to Iwata directly. This implies Iwata died in that town in that game and that's just... wrong. Compare it to BotW's Iwata tribute, where it's more like Iwata is a sort of guardian spirit horse-thing that looks over the land from on top of his mountain, so it's like even though he died in real life, he lives on in the games he had a hand in.