So what do people think of this?
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Honestly, your intentions aren't awful with the whole adding back Lucas thing... But It is true that people can easily take issue with your main argument being solely honouring Iwata.
I honestly don't think Iwata's legacy would be more or less valued by adding one character from a game which didn't make It overseas into a crossover fighting game.
I find It more meaningful when say, the Mario Movie ended with the credits featuring "former Nintendo president: Satoru Iwata". Because he did have some input back then on the movie, and he for sure would have loved to see the final version of the movie. Or even that old Switch Easter egg where by doing the Nintendo Direct pose with the joycons you got to play one of the games he created while an interview with him played on the background.
Basically what I'm trying to say is... There are better ways to pay tribute to Iwata than adding a let's say It, obscure character for casual audiences, into a game where we already have many characters associated with him.