"the average english speaker only has a vocabulary of 500 words. "
Now I seriously doubt that's in reference to adults- granted the person in question may not be an adult, but I know some quite "dumb" kids who have vocabularies far above 500 words.
"However, I do think it's reasonable to acnowledge that those words exist, and pay some homage to them."
I agree it's good to acknowledge new words and add them to your vocabulary (that's what I do, and if you ask me my vocabulary is pretty extensive), but paying "homage" I think is a bit eccentric, don't you?

"Any native speaker of english SHOULD have been able to do that. To immediately assume it is a spelling error is a little "strange" to me."
Not quite- if one has never encountered the word "sidle", they probably wouldn't be able to guess its meaning right away. Given the situation in Zelda (where it pretty much demonstrates what sidling is), maybe so. But remember that the word "sidle" is written in very small text on a very small picture of the A button and Guymelef may be playing the game on a small TV. Especially on lower resolutions and worse TV's, words tend to run together (I had a horrible problem with this until I got my new TV, a 20", about 2 weeks ago). In such a case, it would be very easy to mistake "sidle" for "slide", especially when they contain the same letters in almost the exact same order, "i"s tend to resemble "l"s, again, especially on lower quality settings, and they have almost the same meaning. Given all these circumstances, I think it would be perfectly plausible that someone would mistake the word for a misspelling of "slide".
"Granted though, using "fell" in that context is something that only the more literate among us would pick up on. It seems very natural to me however, given the context it was used in. It was used in an old legend being shown to the player. It's natural that a slightly higher form of english would be used. "
"Fell" is more Old English, and I've only seen in used in such cases (in Lord of the Rings, book and movie, and Wind Waker).