I've used a lot of lithium-ion polymer and cells over the years and I've seen old Apple laptop batteries, cell phones, and the like expand as well too from normal usage non-short circuiting and non-over changing. The chemistry in the them can go bad over time without the circuit being at fault.
So I would check with Nintendo if they are willing to warranty the battery or if you have to send the whole system in.
So I would check with Nintendo if they are willing to warranty the battery or if you have to send the whole system in.