I guess I'm a bit late to the party, but, hopefuly you'll still be interested in knowing this:
Some Rare games do, in fact, run at native PAL resolutions. Not all do, that's true, but some do.
I know this because I personally tested for this. I have a list somewhere, where I tested a bunch of games for this and other aspects, but before I try to dig it up, here are some games I'm certain that have native fullscreen PAL with NO SCALING involved:
-GoldenEye 007 > 288p, no scaling. Oddly, the main menu with the dossier folders for each save, is DOWNSCALED from a much higher resolution framebuffer in both NTSC and PAL)
-Perfect Dark > 288p, no scaling... but I think the reduced version of the game when there's no expansion pak does use scaling/stretching
-Diddy Kong Racing > 288p, no scaling up or down anywhere I have seen.
During that session of testing games, I noticed that some NTSC games also do video scaling to stretch the framebuffer to fullscreen. Some do it just in their high resolution modes, but some do it even in their low resolution modes:
-Body Harvest > both PAL and NTSC render to sub native resolutions and stretch to full screen. I assume both versions render to the same resolution framebuffer. I haven't attempted to compare whether the stretching up to 288p provides any clear advantage over stretching to 240p, though...
-Turok 2 > both PAL and NTSC render under native resolution in "HI-REZ" modes and stretch up to fullscreen. It's hard to see, but I even have comparison captures somewhere. LO-REZ mode is is 240p in both, PAL having black bars.
-STAR WARS Episode I Racer > I'm not sure if there was anything funny or not about 240p and 288p, but I'm certain NTSC 480i and PAL 576i were BOTH upscaled from a lower resolution framebuffer.
Finally, there's the curious case of the original Japanese version of the first Goemon game, the 3D action adventure, not the sidecroller.
The USA NTSC version is 1:1 240p and the PAL version is stretched fulscreen 288p... BUT the Japanese version is a 240p framebuffer UPSCALED to 480i!!! crazy... Don't take my word, just check it. I think I even have comparison shots. Ask if you want them.
Makes me wonder how it would have looked if all these PAL versions with video stretched/scaled to fullscreen (adding MORE blurriness to the N64) would have instead been upscaled to 576i...
I mean, upscaling 240 to 288 will necesarily be quite crude, specially without a very highquality scaling algorithm, which, obviously, isn't available on the N64 hardware, so why not provide more "room" with a much higher target resolution?
So the N64 was ahead of it's time in this too, imitating modern console games' trend of upscaling of sub-native framebuffer resolutions. TAKE THAT PLAYSTATION AND SATURN!!! ... wait... oh...
ADDITION: When a framebuffer of 240 (it's usually 237, but they map that 1:1 to display lines) is upscaled for a 288p display, given the relatively low quality scaling algorithm on the N64, every few lines the framebuffer and display line up perfectly and no scaling is needed for that line.
This happens every 6 lines: 1st line matches, 2nd one needs some blending with neighboring lines, 3rd some more, 4th is almost unrecognizable, 5th is similar to 3rd, 6th is similar to 2nd, and 7th is really 1st again.
The beat frequency of 240 and 288 is 288-240=48. This means, 48 times across the vertical axis of the screen, 240p and 288p lines match (they happen at the same height.
240/48=5 and 288/48=6. Every 5 NTSC lines turn into 6 PAL lines, and 1 in these 6 PAL lines matches perfectly with an NTSC line.