How are you sure that the reason for custom moves not being used very often is solely related to their effects on balance and not due to the possibility that people didn't want to use them? How would some characters benefiting from custom moves indicate that custom moves make the game more balanced overall?
I thought that Palutena and Wii Fit Trainer were known to benefit from custom moves anyways. Besides, from what I heard about the tournament, custom moves apparently weren't used very often in general. In any case, some of the high-tier characters have useful custom moves, there are a few other characters that improve mainly because of one or two custom moves, and the rest of the characters would certainly fall behind due to not having useful ones. It doesn't seem that custom moves actually make the game more balanced.
Also, I never expected custom moves to benefit the game significantly or make the game more balanced.
Why would the problems with one of Sheik's attacks justify the problems with those custom moves? Just because a problem exists doesn't mean that the others like it are justified nor does it mean that more should be present.
Customs were used a fair bit. I didn't make it as far as some others, but here was a breakdown of my tournament:
I used 2311 Rosalina the whole time except in one match where I used 2313 Rosalina (I never actually used down-3 in gameplay but selected it). My opponents:
Winner's-1: I defeated 1111 Zero Suit Samus
Winner's-2: I defeated 1312 Mega Man
Winner's-3: I lost to 1312 Mega Man
Loser's-5: I defeated 2122 Ganondorf [this is the game I used 2313 Rosalina]
Loser's-6: I defeated 1111 Dr. Mario
Loser's-7: I defeated 3112 King Dedede
Loser's-8 (2nd wave of pools): I lost to 1111 Olimar
So out of my opponents, 4 used customs and 3 did not. As per how the matches went...
Winner's-1: My opponent seemed very inexperienced. We played both games on Battlefield, I used up smash a lot, and I pretty much just didn't let him down after landing the first hit in both games. I don't think customs were relevant to what happened here.
Winner's-2: Bear knew a lot of really smart tricks especially with Rush Coil (which is of course a default move), but my analysis of his gameplay style suggested to me that if I simply never voluntarily hit the jump button I should win by just trapping his landings with up smash as much as possible. We had some tense exchanges between Skull Barrier and Shooting Star Bit as I executed my strategy, and Luma Warp definitely helped me quite a bit (while he used Danger Wrap to further guarantee that I would jump as seldom as possible; he used the customs to further re-enforce his playstyle of punishing jumps). We both played the stage game non-conventionally, playing game one on Delfino Plaza and game two on his counterpick of Castle Siege. I felt as though my win was decisive, but it was a very interesting set in which the customs made a clear difference.
Winner's-3: Seibrik is very strong, and he showed a higher level of the Shooting Star Bit/Skull Barrier meta. Specifically, he had this bait in which he'd Skull Barrier a SSB, carefully weave his position, I'd Luma Warp and *barely* miss, and he'd punish Luma to set up for his approach. His clever use of the customs to beat out my custom long range game alongside his use of lemons to prevent me from moving in ultimately won him the set. This set went to game three with the stages being Battlefield, Town & City (his cp), and Duck Hunt (my cp). He came out of it looking like the clearly stronger player, but I gave him a good set.
Loser's-5: This was quite the exciting set; he made excellent use of Wizard's Dropkick to get past everything I wanted to do. He also had a super scary moment in which he landed a Dark Fists, but I was able to DI out of it to survive when I would have died. I peppered him with star bits throughout the match and was always looking for Luma Warp, and while this often worked to my favor, at other times he used it to ftilt Luma (reading the warp) or to Wizard's Dropkick in. I don't actually remember the set count or stages, but it was a close, good set. I feel without customs I would have just annihilated him as Wizard's Dropkick was absolutely essential to both his approach game and to his recovery, and in general I would have no problem just turtling against Ganon even without a projectile. I was actually sad in general this player (whose handle I don't remember) went out so early since he really did have a solid Ganon.
Loser's-6: Again a lot of my memory of this set is fading, but I recall that this player seemed inexperienced in the Rosalina match-up. My customs helped me quite a bit and led to a complex projectile game of his pills and cape vs my bits and warps, but more often I caught him with my favorite Rosalina bs of having Luma hit while I'm recalling it (to ruin his chases after he hits me). I think my customs were relevant here, but I think the deciding factor of the match was match-up inexperience which would have happened regardless of ruleset. I know I won 2-0.
Loser's-7: This was a tense set against Chazo's King Dedede. His customs didn't really help him all that much since I mostly did a good job of staying out of the way of Taste Test (he went for it several times though, and had he connected more, it would have spelt an early Luma death) and all DDD down-Bs are bad, but then again, he was smart about blocking warps and bits so the dynamics really boiled down to the "basic" dynamics of this MU which are that DDD is a very unsafe character who will inevitably fall to a smart, defensive high tier like Rosa. This did go to game 3, but I don't remember stages.
Loser's-8 (QF pools): This was an ugly game in which I was exposed as being awful at the Olimar match-up. I got wrecked, he wasn't using customs, and my customs only delayed my inevitable doom a bit. I lost 2-0.
Had customs been off, my bracket probably would have played out the same way except I would have destroyed the Ganon player instead of having a close set. However, the customs made the majority of my matches more interesting and worsened none of them (they were probably a minor downside for Chazo's DDD at worst, but Taste Test had the potential to make a solid difference).
If we look to top 32, we see that 21 different characters were represented in the top 32, three of which seem extremely likely not to have placed without customs (Wii Fit Trainer, Palutena, and Mii Brawler). We see that the only character who was dominant in any way was Sheik, a character who is clearly dominant in any ruleset. We also note Meta Knight, a character who is often cited as a not impressive character with poor customs, did make top 32 anyway, and we note that despite Mr. Game & Watch conventionally being on the list of "characters who really need customs", default G&W made it very deep on the skill of a dark horse player. It is indeed possible that customs in the long run may have a different result, but for now, it seems like they make some games more interesting, a few characters viable who wouldn't otherwise be, and beyond that don't rock the boat and don't serve as a detriment to players who want to use defaults. I don't see how this isn't a very positive outcome and one indicative of an overall improvement in balance.
with custom 
