I guess to start, your point on promotion is all over the place because you are saying Nintendo doesn't do promotion but they also do promotion. All I care is they have done it and can do it again. If ARMS and Byleth are "promotion" then we can say Nintendo can do it again. That's all that needs to be said on that.
Now, on the meat of the post. I think the issue is that you're a bit lost with what I'm trying to convey, so let me start with a summary. From rumors, Nintendo was/is planning to have a big event for the 35th Anniversary. They were planning to have a physical event which they haven't done since the Switch was unveiled and they haven't had a press conference at E3 since 2012. Clearly this was a big deal. So, it's not unreasonable to think Nintendo would include Smash in this. They've done it with other DLC characters and they did something similar for Smash 4. In short, Nintendo may add a character that is to promote Mario's 35th Anniversary. Now, hopefully we are on the same page here.
This is why they want someone recognizable. They want someone who can be put with a lot of other Mario content without being odd. Could they have a Mario theme spirit board. You'd want someone who is general enough that they appear in a lot of Mario titles. This is why you'd probably want someone from the general cast. Waluigi would work. He's in a lot of the Mario spin-off games. Toad, Toadette or Captain Toad could work too. They're in a lot of games too and Captain Toad has his own game. Geno wouldn't work because he could only be centered around that one game (also Nintendo doesn't own him so there's that too). Basically, Geno doesn't scream "35th Anniversary".
You mentioned that Mario already has a lot of recognizable characters in Smash. This is true. On the other hand, why does that justify adding someone that is obscure. Why shouldn't Nintendo want to add recognizable characters. You mention that Nintendo "doesn't appeal to a general audience." Smash has included tons of recognizable characters so this point is a bit nonsensical. This is why we have Inkling, Isabelle and why each game gets a new Pokemon. Nintendo clearly cares about adding characters people know. Nintendo doesn't add completely random characters; even the more niche characters are prominent enough that people will recognize them.
I never said Nintendo doesn't pick promotional picks. They do. What I'm saying is that they've also picked characters that aren't. If you can argue Nintendo will do a promotional pick again because they've done it in the past, then the flip side is that I can also argue that Nintendo can also pick characters that don't necessarily boost them in a huge way. I'm saying that the idea of Nintendo doing another promotional pick isn't enough to put Geno out of the running at all because they've also done non promotional picks. Hopefully that clarifies what I meant
And to address Geno not being a main cast character, and not screaming 35th Anniversary, that hardly matters. Mario has done more than just platformer games. The Mario RPGs are a section of Mario that are constantly talked about online. I could also argue it's just as important to celebrate all aspects of Mario, not just the main ones. Geno is also arguably the most predicted character for Volume 2. Many prominent YouTubers have brought him up and he still is relatively high on fan polls. Believe it or not, but Nintendo does pay attention to this group. And as shown time and time again, they have catered to it. They can easily cater to this group again for Mario's 35th anniversary. They can sway ether way, and along as that's the case Geno is still on the table as a potential Mario rep
To continue with this point, the main problem with the argument that Nintendo would put a more recognizable character over a niche one is that there's already been a similar case of this happening specifically with Microsoft. Nintendo collaborated with them to include a character of theirs in Smash. If we're following your logic, then they would go for someone "recognizable". Someone general that has appeared in many games. Sounds a lot more like Steve or Master Chief rather than Banjo. Guess which one got in? It's not exactly the same scenario, but it's proof that yes, Nintendo can pick whoever they want regardless of relevance. Sakurai himself stated it's more important if a character is more fun to play rather if they are relevant or not. I have no clue why people keep using relevancy as a point against Geno
Mario having a bunch of recognizable characters doesn't justify a niche character should be added sure, but it certainly makes it easier for a niche character to be added when all the major players are already in. That's why I'm saying that I don't think Nintendo would be extremely hesitant on Geno because they already have a lot of major Mario characters, so one niche one won't hurt them in anyway. Especially since it's Mario and you can literally slap it on anything and it will be a guaranteed success
Also I never said Nintendo doesn't appeal to the general audience at all. You must've misread. What I said was:
Nintendo doesn't care about specifically catering to the general public
Key word being
specifically. Meaning that they do cater the general audience, just not with every single pick. If Nintendo was concerned about whether or not every character was recognizable to the general public, then why go for Banjo over Steve? Why choose Terry? And Joker? Those are not picks that I would describe as "general audience picks". And as long as that's the case, then there isn't exactly any major roadblocks for Geno getting in