Has anyone noticed in this game that, when Rosalina is getting star KO'd with Luma still alive, Luma will attempt to follow her? He'll trace along her animation as she spins out in the background. Unfortunately, it doesn't seem possible to command Luma to do a last minute desperation attack during this time; being star KO'd apparently counts as Rosalina being in hitstun.
But yeah, as everyone else said, that's just how the game is, and it's dangerous territory to argue against it. I lost a very close tournament game in a late Brawl tournament to a star KO time-out. It was mutual last stock with my G&W at 120%ish and my opponent's Diddy at 80%ish. At the very last moment I made the hardest of the hard reads and landed an up smash that sent him over the top blast zone (and at that percent near center stage, it was G&W's only move other than a lucky #9 that could have killed; I had no option to kill off the side). He was near the end of his star KO animation when the announcer called TIME. Had I gotten a screen splat, I would have won outright, but that didn't happen. Instead, the game went to sudden death, and by tournament rules since I was losing by percent at the time-out I lost the game and thus the set. I was very disappointed at losing the game after making that read, but I understood because it is the only reasonable way the rule can be. If it happens to you, you can be disappointed in the result, enjoy having what will always be a great smash story, and carry on.