Ok it appears I was wrong, if you don't have the controller connected the code won't output anything.
I'm using the Arduino Diecimila, but it should work with your Mega. The assembly code is mainly just a bunch of NOPs (no operations) to get the timing right, so it should be ok.
This suggests the wiring from the controller to the Arduino is wrong. Are you sure you have the +3.3 V and ground wires right? (seeing as you cut off the connector you'll have to go by the colour of the wires, I don't know what they are). Some diagrams that show the N64 connector show it looking at the controller's plug, some show it looking at the port on the console. This would cause the +3.3 and ground lines to be swapped if you mixed the diagrams up.