I think I finally found something that would satisfy everyone. Why don't we do both? Give zelda and sheik each a new down b, and design a separate zelda/sheik character around transforming. With the clone engine, they could add another zelda and sheik with a transform buff designed to be transforming mid followups in battle. The original zelda and sheik are already good enough to be stand alone characters in themselves, so giving them a new down b would just round out their capabilities.
New Shielda:
The only game where zelda transforms into sheik is ocarina of time, so their models would be based off of that game specifically, while the stand alone versions would be from the other games. To truly design a character, first they would need to fix the loading time issue. Secondly, they'd have to make it quick and safe in battle, maybe not instant, but at least as safe as most other moves so let's just say 10-20 frames? That way it wouldn't be broken, but you could still transform during a combo or followup. Sheik's speed and ability to chain hits together would be preserved but would have a nerf to killing power, which zelda would fulfill, so you'd see a lot of jojo like kills. Zelda would keep her defensive capabilities like her great floatiness and love jump to escape combos, her reflective and invincibility frame nayru, but lack the offensive flavor of land cancel nayru and possibly dins fire set ups.
Having a separate version of shielda would allow them to design the truly tagteam style of fighter that was the nintendo's original concept for how she was supposed to work by making a transform that was super good. There would be no danger of the character being broken just because of the new transform buff because they would nerf her individual sides in specific ways so that transforming becomes a necessary element of her playstyle. And, no one would be upset about these nerfs because the amazing work ryoko and zhime have done perfecting their individual sides would be preserved in the stand alone versions.
Stand Alone Zelda and Sheik:
Stand alone zelda could be her skyward sword version, whereas stand a lone sheik could be skyward sword impa. This actually makes sense since in that game, zelda and the sheik-like character are different people anyways. I know skyward sword zelda is kinda ugly, but her alternate costume would be the white dress she has towards the end, which I think is actually pretty. Plus, if you still hated it that's what brawl vault textures are for. Impa's alternate costume could be her version from ocarina of time. Also, I realize that skyward sword was made after brawl so maybe there's a legal issue about having characters from that game appear in P:M, so in that case, stand alone Zelda could just be from twilight princess, which would still make sense since she doesn't transform into sheik in that game anyway. Sheik would then be Impa from OoT with an alternative costume of Brawl Sheik.
The new down b move for Sheik/Impa is a little bit of an issue since they could just give her nothing and she'd still be top tier, so whatever she got couldn't be too good, but then what would be the point of giving her a purposfully bad move? But here are some of my ideas for the new down b:
1) Some type of shield like move like impa uses in skyward sword when she battles ghirahim a the temple of time.
2) A down b jump similar to zss.
Regarding the shield like move, I was thinking that rather than having it end up like another nayru's love, what it could do is clank any move but have very specific timing, maybe 2-3 frames. That way the reward is really good, but it wouldn't be game breaking because it would be very hard to use. Just an idea.
And about the down b jump, it would be filling in a little for shiek's sudden loss of recovery by not being able to transform into zelda. Although, sheik's crappy recovery is an important weakness, so it would have to be a shorter and less versatile jump than zss's. If they went with another move than a recovery down b, then I think her side b should actually tether the edge, that way they'd be giving her chain another use while only marginally buffing sheik's recovery.
For Zelda, the new down b move could be something like making dins fire detonate on command or be the light arrows. Either of these options would be useful because it would increase her defensive capabilities at a distance, which is important for her terrible match ups against opponents like zard and fox/falco.
Down B detonation would be useful in that case because it couldn't be reflected by shine, and the dins fire mines could be made to stay out longer or indefinitely like snake's mines. Thus, increasing her combo game considerably.
Light Arrows would have a danger of ending up like pit's, which would just be boring. Instead, an option that would also be more true to canon would be having the light arrows stun the opponent like they do to ganon in OoT. This would allow her to punish campy spacies, while not being broken against them because if they reflected it at her, they could combo her to death. Against other characters though, I could see the stunning light arrows being too much of an advantage so perhaps it could have a very long cool time down like rob's lazers, and of course, they could be powershield reflected back too.
Another possible down b would draw from skyward sword. She could call her loft wing for a short glide and possible glide attack. This would help mix up her recovery a bit and allow her to get back to the ground a little safer, since she has such a hard time being juggled and regaining her footing versus marths and links.
Finally, I would personally rather see some sort of magic light based attack since her magical style is what attracts me to her in the first place. Also, pretty much in every appearence of her in the games, she's had some sort of light spell
