cyclone3 nstatus pin keeps dropping low

I already mentioned the problem of FPGA configuration while AS flash is empty respectively doesn't hold a valid configuration. There may be additional problems in your hardware, but the reported nStatus behaviour is normal operation with an invalid AS configuration, because the FPGA periodically tries a re-configuration.

From Quartus Software Hanbook:

halt on-chip configuration controller

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Halts the on-chip auto-configuration controller of the FPGA device for AS configuration, or the configuration device for PS or Fast Passive Parallel (FPP) configuration to allow JTAG configuration through a download cable. If you want to configure your FPGA through JTAG while the FPGA MSEL pins are set to AS mode, you should halt the on-chip configuration controller if any of the following circumstances occur:

■ The active serial configuration device connected to your FPGA is blank

■ The active serial configuration device is not present

■ An error occurs during AS configuration prior to JTAG configuration

If the MSEL pins are set to PS or FPP mode, halt the configuration controller of the configuration device if an error occurs during PS or FPP configuration prior to JTAG configuration. The FPGA pulls the nSTATUS pin (which is connected to the OE pin of the configuration device) low to disable the configuration device.

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