I was under the impression that Cloud wasn't in SSF2 because he was already in the original. I think they were trying to distance themselves from the first Super Smash Flash, which had an... Interesting roster, shall we say.
Interesting you mention that
SSF2 Was planned to be more like SSF1, I don't know in Gameplay (Hopefully not), but definitely in the Roster
We were gonna have More OC's like Azrael and Spike, We were gonna have Characters like Vegeta and Sasuke, And there would be many more returning Characters from the First SSF like Blade, Blue, Knuckles, Shadow, and more. I think Cloud was on that planned roster
There were also "Expansion Based" Characters that were planned like Sephiroth and NES Mario (Expansion meaning after the Base roster I Imagine)
However Starting with Demo 7, That roster was scrapped. That was also the same Demo that had Black Mage interesting enough. This was when Anime Characters started to stop being added (Until Luffy, but he was an special Exception), and the Roster started to be more like a Traditional Smash game
Personally I miss some of the ideas that were in the Back Pocket, Like the Story mode that was planned, Final Smash Transformations that had a seperate gameplay mode where you play as the Transformation for the entire match, The Cut Roster, and more. It would have separated SSF2 more from the Official Smash games, which depending on how you look at it is Good or Bad.