I mean... that's basically what's happened to Zelda since Brawl. Newer games are represented only with items and stages for the most part. Link getting a new visual look and a new knob added to his down special is pretty much the only thing in the last two games that reflected in characters. Zelda and Ganondorf, as others said, actually went backwards, with Zelda based on ALttP and Ganondorf on OoT.
Mostly due to the main characters of every Zelda game, Link & Zelda, already being in Smash, so they represent the newest game by themselves. Link & Zelda would have likely been updated to Skyward Sword if not for Ganondorf not having a design in that game..this time it was practically required for Link to be updated to his BotW look, another game lacking a Ganondorf, so I think Sakurai instead decided to represent previous entries with Zelda's LttP/LBW fusion design and Ganondorf's OoT design..which thanks to the remake of Ocarina of Time on 3DS was funnily enough his most recently used design, not counting Hyrule Warriors due to being a spinoff.
so then does Xenoblade have to represent every new game in their series as well? or what about Pokemon?
if Xenoblade Chronicles X and Pokemon Black & White fans are allowed to be underwhelmed than why aren't fans of any Fire Emblem game that was released in the last 15 years?
If they stay popular, yeah, pretty much..there's a reason people saw Rex & Pyra as locks before they knew they were too late.
Xenoblade X, yes, as it was the newest game at the time development started, but it was also before the series got popular, Black/White, not so much, as similar to Ruby/Sapphire, a newer generation game released before the next Smash Bros game and thus that Gen took priority over the previous Gen. The next Generation, and perhaps even Sword/Shield, will likely end up in the same boat.
To be honest, I know a lot of people do like Byleth but they don't particularly get a pass from me either. If Nintendo really wanted to show off something hot and new on Switch, it would have been great for them to take the opportunity to endorse a brand new promising IP like Ring Fit and Astral Chain. I feel like Fire Emblem has just evolved into the defacto "promotion" series on precedent and Nintendo took advantage of that again. The same could be said about Corrin relative to say, Elma or even Inkling (although I'm happy they waited until Ultimate to do them justice).
Their addition doesn't feel as egregious anymore with Min Min and Pyra / Mythra in tow, but I think there's still a case to be made for Byleth being a somewhat poor choice among other series that have been less fortunate and could have used a similar endorsement. Three Houses was already a success and Fire Emblem had gotten its boost from Smash plenty of times over already.
I feel like this is something that doesn't get acknowledged enough. A lot of criticism against the abundance of Fire Emblem is founded in relativity to other series in Smash - "why does Fire Emblem have eight characters and [insert series even though we all know I'm talking about Donkey Kong] only have this many?" I think a much stronger case is to realize how many series don't have a single character and how those opportunities are squandered in favor of piling on love for series that have already got it in spades. Just my two cents anyway.
I think that primarily comes down to Nintendo playing the odds. With base game, they can include stuff before they know if it was a success, but with DLC, it's much harder to tell if it'll succeed or bomb, this is probably why Inklings weren't considered for DLC last game but Corrin was. Fire Emblem is practically guaranteed to be a success, new IPs are not.
This is part of why they always save a spot for a new Pokémon in base, because that series prints money, and why I don't think a spot was saved for Rex/Pyra base game or first round of DLC, at that stage they hadn't been aware XBC2 was going to be a success but were pretty sure Three Houses was going to be..and then it became the best selling game in the entire series, making Byleth's inclusion make even more sense.
Sorry, but Byleth was a good decision, Sakurai was the one making bad decisions by incorporating so many Marth clones...Marth became the Ryu of Smash like that..