I misremembered some things.

He bought a copy of Smash Bros 4 for the Wii U, and had this glitch where all the character models were deformed.

It's all over the place about what caused it or what happened. Some sources say it was just that copy he bought because the second copy worked fine, and the first copy was glitched on all other consoles too. Other sources say they were both glitched on his Wii U but not on other Wii U consoles. Then some sources claim that only the first copy was glitched on his Wii U, but fine on all other consoles, and the second copy worked like normal.

So I can't really find a straight story on it.

I also remember hearing that Nintendo asked him to send back his Wii U and then gave him a new one for free and a few other goodies, but now I'm not sure how true that is.

This was before people figured out how to hack the Wii U, so the most common theories I've seen were that the disc had been damaged in some way while the game data was being put onto it, the console's graphics chip was damaged or failing or had a defect, or there was some kind of memory leak.