I have the regular flame red 3DS now and for the price I paid ($99) because I managed to find one of the clearanced systems its quite good. DS games look fine on it, the stylus placement could use some help but that is not an issue for me since I prefer to use my own larger stylus. I would probably have a much different opinion of the system if I paid the original $250 asking price... yikes!
I don't think the circle pad actually contacts the top screen as mentioned previously but I do I think the raised bottom of the bottom screen contacts the top screen, however I have noticed this seems to only happen when you put pressure on the top screen. Aka when you are holding the system in your hand and holding the top and bottom at the same time, perhaps putting the system in a pocket would cause this effect. Anyways this can be fixed easily with screen protectors so your screen doesn't get permanently damaged or by putting larger bumpers on the top screen.
For the preinstalled copy of Mario I think a system transfer would work but I think it would take all your data and move it to the other system, unless there is a way to just select the one game to give (which I think there might be). You may have to resort to keeping the preinstalled copy for yourself and giving your nephew the physical copy.