Why would switching lands give him more flexibility in bastard heirs, or an opportunity for Royal Crown? Southern Netherlands was still just as much part of the HRE as Germany proper. Was Emperor Joseph granting him a special dispensation as part of the trade? Was that even in the Holy Roman Emperor's toolkit?
It's a sort of combination between new kingdom, new laws, and the laws already in place. Morganatic marriages (AIUI) didn't exist in the Netherlands, nor was there a bloc towards "legitimized" heirs inheriting (again AIUI). Not to mention that Karl Theodor could simply
pay the Hochadel tax (once his equally born wife dies) to have his morganatic marriage declared equal by the emperor (Anhalt-Dessau descended from the daughter of a local pharmacist for that reason). Kids wouldn't necessarily inherit the Palatinate, but they would be legal heirs to "Burgundy".
Maurits of Nassau threatened his brother, Frederik Hendrik, with "legitimating his bastards" in order to force Frik to get married. I doubt that Maurits could've done this if there wasn't
some loophole in Netherlandish law the allowed for it.
That said, Julich-Kleves-Berg is a quagmire of female succession in the 14th century, so it clearly didn't operate on the same principles of Salic Law as the rest of the Empire. So there's a headache coming on there
It would not.
Said kingdom would still fall under several family laws of the House of Wittelsbach, and there had some recent decisions regarding the counts of Löwenstein-Wertheim that prove that no illegitime child was seen as part of this.
Not necessarily. Karl Theodor's line would inherit "Burgundy" while the Zweibrucken line (in the person of Karl II of Zweibrucken), at best, would only inherit the Palatinate. And, considering how close the Zweibrucken line came to extinction (Karl II only had one son, Max IV/I of Bavaria only married
after Karl's son died; Karl-Max's sister was married to the prince of Gelnhausen, the last other Wittelsbach at the time, and they only had one kid, and Gelnhausen was pretty abusive towards his wife IIRC, since she spent more time in Munich than with her husband - hence the low number of kids, who was brought up by uncle Max).
Recent in 1785 or recent in 2021? Also, link please.