1) Never update to 4.2. You CAN NOT downgrade from it. It will mess up your wiikey2 and block out of region gaming on it.
2)I have a wiikey2 on a system menu 3.2 and everything works fine.
3)Even I have some games that no longer work after awhile and have to reburn them.
4)Try using the non patched version of NSMB. That could be your problem.
5)You can install the homebrew channel still and have your wii softmodded. The reason I have mines softmodded is so that I can install IOS for games so that I don't ever have to update.