Personally I always imagined it as Rex mostly being the one attacking with Pyra/Mythra joining in for a couple special attacks, just like in the original game. I'm not sure whether they would want to make the two of them fight separately though, and whether or not Pyra/Mythra would have a hurtbox would have depended on how they balanced Rex.
This is the idea that seems the most natural to me since it's a more direct representation of Xenoblade Chronicles 2's gameplay, and it's how I conceptualized the character in my Rex & Pyra/Mythra Fighter Pack idea.
Looking into it more though, it kind of looks like neither of these ideas were considered at all. According to
this video from SourceGaming, it looks like Sakurai considered literally just making them like the Ice Climbers in that you control them simultaneously, or having Rex be a standalone fighter with Pyra being there for flavor like the Pokémon Trainer. Both ideas (the second one especially) sound kinda lame in comparison to the ones mentioned earlier IMO.
This might actually be why they didn't work as a duo with this concept due to their complex designs despite their models being able to be present at all times: The other Ice Climber isn't just another model, they're another fighter entirely, and the "sacrifices" they had to make likely had to do with their visual effects (Pyra at least would require a ton of fire effects and the like on everything) and individual mechanical complexity (Rex would absolutely fit that bill with his Arts as Special Moves, but some of Pyra's Special Moves do have some unique properties behind them). Looking back for clarification, Sakurai does allude to this, but everyone including myself latched onto the part about the model's complexity.
Perhaps the actually gameplay accurate approach would have worked, but they never thought of it since the first duo idea didn't. I would be bummed out all over again if it turned out that that was indeed the case.
I do think it's a shame that we didn't get to see the driver/blade system in this game. It would have been super cool and while they could revisit the idea in future games, the fact is they would have to get rid of Pythra's moveset altogether and create pretty much a new fighter, and at that point they probably would prefer to focus on new fighters, especially since XC3 will surely be a thing before the next Smash.
I don't think you would have to get rid of Pyra/Mythra. If you were adding Rex & Pyra/Mythra into the game alongside them, then you could give the NPC Aegis the disguise Pyra wore in the beginning of the game when they and the playable version were both present so they couldn't be confused for each other. If it was Nia & Dromarch or Torra & Poppi though it wouldn't even be an issue.
You are right though, Pyra/Mythra is all Xenoblade Chronicles 2 is going to get in the character department since the rotating cast dictates that only the current protagonist can get in, which just sucks.
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