I just lost to an Ike who is significantly worse as a player than I am. Why? He had a custom Neutral Special move that sent out a tornado, creating a VERY powerful windbox. This windbox was larger than the ledge sweetspot, meaning I didn't stand a chance against him, no matter what. Players can exploit custom moves in this way to give themselves an edge, and, while I was Little Mac, I don't believe any character(save for a few, like Pac-Man and Lucario) could've recovered from the windbox that blows you off-screen from a greater distance than you can grab the ledge.
There are also multiple instances of custom Special moves being superior to the default. For example, Mario's Fast Fireball custom Special move. Who will be hit by a normal fireball? With that in mind, the damage penalty isn't really of much importance, considering the attack is much easier to land and quicker to launch( you can fire the projectile much faster ).
Additionally, there are several custom moves designed to fool your reflexes. While I am a big fan of Little Mac's Dash Counter move, I cannot say that it is very fair. Samus shoots a missile at me, to which I respond with a counter, flinging myself at her to deliver a punch. Inversely, I would not be able to counter the missile given that Samus was using her own custom Side Special move -- one that has a missile begin by moving very slowly, only to accelerate gradually over time. The logical response to this is to just shield it -- to which Samus rushes in and grabs. The other logical response is to just get used to it and time it correctly. Physically, this is impossible. The missile will begin at a slow pace, then accelerate. Simple, huh? Not when you consider the fact that the missile does not stop accelerating by the time it reaches you -- meaning it is very difficult to pinpoint when it is going to make contact, due to its inconsistent speed.
The other example of this is Lucas's PK Thunder as a custom Up Special move for Ness. It travels in a tighter movement, making it superior for recovery. You would think, then, that the launch move would be lesser in terms of attacking. It doesn't turn out to be so, because rather than being worse in general, the power is transferred from knockback to damage. Then, it deals more damage than knockback as opposed to the default dealing more knockback than damage. This would mean that the recovery speed and reliability is better, while, as an attack, the move is no different.
Of course, this could be solved by simply banning individual custom moves, though we'd be banning damn near all of the custom moves by simply banning the unfair ones.