Happy medium.
I say that my idea of what power level each character should be in Smash is this: if the actual characters fought with all their usual abilities from their actual source materials available, who would win?
Pikachu could probably take a good amount of the characters, consider how powerful electricity is, after all. And since pokemon are infamously durable (they can be poisoned, frozen, burned, stomped, clawed, hit by the judgement of god, bitten, beamed, have a bomb blow up in it's face, cut, mentally attacked, psychokinetically manhandled and constricted and the very worst that will happen will be it fainting), Pikachu could probably take most everything sent at him, like a laser beam from Fox or the slash of the Master Sword from Link.
But a average level 100 pikachu could never take on a average level 100 Mewtwo (who, by my "actual power" ratings I.E. abilities outside of Smash, is the second most powerful character in Melee, despite the fact he is actually low to bottom tier), and he certainly wouldn't always defeat, say, Mario in a fight. So I say Pikachu should be a somewhat above-average character.