C-stick is just a short-cut - an alternative. You can use either of them effectively and whoever says "if you don't use the C-stick you're a horrible player" apparently doesn't know what they're talking about. Personally I despise using the C-stick, I've gotten my fair share of noob opponants who spam it (rotating it constantly in a circle).
If your reflexes are good enough, using the control stick + A button is fine, but if they're not so great, flicking the C-stick is good for smashes. Also, C-stick doesn't enable the use of tilts (unless I'm mistaken.. haven't played in ages.). Tilts are essential to game-play as weaker attacks that build up damage and help chain moves together, especially for Peach.
Try incorporating the C-stick into your gameplay, but don't completely abandon the control stick + A button.
As for holding down the X/Y button, I assume you're holding it down for Peach's floating jump. Er.. when you need to float, try pressing the X button with the finger you usually use for the Z button? I don't know, I never use those so anything I suggest including the X and Y buttons are situations I can't guarantee will work. But if you use your right index finger for the X button, it leaves your thumb open to hit the C-stick. Could be awkward at first, though..