Let me explain: The demise I speak of is the roster becoming MUGAN. Obscure Nintendo characters may not be initially exciting, but they bring light to a different side of the company. They add something interesting, and they help represent the company's history, Because this is what the game is about. Super Smash Brothers is about celebrating Nintendo. What does Heroes of the Storm celebrate. Does it celebrate the golden age of PC gaming, or is it about Blizzard. It's the latter. That means I don't want Command and Conquer characters in Heroes of the Storm. I want Tracer, not the Scout.
The demise of Smash Brothers is because the roster and additions become meaningless. It becomes about adding "icons" and becomes a mess. MUGAN is a fan game for a reason.
I think there is a huge difference between Mugan/Mugen and Smash and it has a lot to do with polish/a central vision and the fact that the roster is "balanced" and the additions are curated- I think it's a sign that all of the guest characters thus far are huge iconic characters that are recognizable by non gamers and are the top video game characters in Japan. Hasn't Sakurai called smash a celebration of Japanese gaming before?
I personally love the obscure and historical throwbacks to Nintendo's past, but there is no doubt that R.O.B. and Cloud carry different degrees of instantaneous excitement that is important for DLC and that some Smash Fans are drawn to the guest characters ( Seeing Mario, Kirby, Link, etc. all together lost it's magic in the early 2000's for people who grew alongside the SSB franchise I guess? Or maybe crossovers have been more and more common in Nintendo's works.)
Smash feels like a huge museum put on by Nintendo showcasing their works but with a few nods to a few important works by other companies. In the whole scheme of content being characters, assists, stages, (non gameplay elements like music & trophies,) Nintendo is the clear focus. I honestly won't worry about the watering down of the roster till the guest characters reach a certain point (for me that is before 1/4 the roster) or we start seeing guest franchises without a legacy appearing.
I think it would be a missed opportunity to showcase characters that aren't Nintendo but are still important to the mythos and lore of Nintendo. I do agree Cloud is stretching it, but his franchise and company still has ties to Nintendo- I understand being upset for Cloud, but wishing away all guest characters seems to also undermine a lot of fan's experiences who grew up with Nintendo and see characters like Sonic, Megaman, Ryu, etc. as being love letters to specific times or games that heavily influenced Not only Nintendo, but the entire industry, and pop culture as a whole.
Edit: I also wanted to say I hold a great deal of respect for you, but I just wanted to say Smash is like a museum, and taking out a masterpiece in a similar style to the rest of the collection just because it is from a different painter would definitely make the museum more enjoyable for purists, but disappointing for the majority of visitors. Who knows if they are widening the floodgates more for money, more surprise, or if Sakurai, being the creative person he is, is growing bored of retreading the same ground. Nevertheless, the guest characters are a fever dream come true for a lot of people even if they are more casual or not "true Nintendo fans" (whatever that means.)