Once again, you created a really fun idea I have to chime in on. I never considered the idea of a Geno creepypasta before, but I really want one to exist, especially if Geno doesn't make it into Smash. Like, it will be a creepypasta entity that represents our lingering anger and disappointment from having our hopes crushed after waiting for so long.
We could call it the "No-Doll", and it's backstory could be based around the idea of the Geno Doll getting possessed by an evil spirit, rather than the Star Spirit we all know. The doll becomes a nightmarish monster that is know for prolonging the death of his victims. It encourages its victims to hope and WISH for some way to survive; getting joy out of listening to them plead and beg as it tortures them. And when it gets to the point where the victim is literally wishing to die and be released, and No-Doll just leans in and whispers "NO." They die only when it wishes to let them. The silencer of wishes and hope, The No-Doll.
Alternatively to your idea of how it could function in Smash, I can imagine this working as a SMRPG creepypasta too. Imagine someone playing SMRPG normally, up until they get to Rose Town, but when they get to the cutscene where the Geno Doll gets possessed, it's not the star spirit that possesses it; instead, some glitchy, shadowy entity enters the doll. The normal music isn't playing during the cutscene, it's dead silent as the Geno Doll gets up and walks out without the usual animation. When they get control of Mario again and leave the house, Rose Town is empty; the Toads that were frozen by the arrows are just gone, and a slower, eerier version of the song that normally plays, "Here's Some Weapons", is playing instead. The player instinctively heads to the Forest Maze next, where things seem normal at first as they follow Geno. However, things start to get unsettling as there's seemingly no end to the paths. Even as the player uses a guide to navigate the forest perfectly, they start ending up in new rooms they don't recognize, like the game is suddenly randomly generating new rooms. There's no end to the maze, and if they try to leave, there's no exit. The music starts to change, the enemies and graphics start to glitch out. No blood or gore, just the game literally breaking little by little. When the player enters into battle, they are greeted with glitched character models that shouldn't even be there; and the darn music just keeps playing. At some point, they can't even follow Geno's model anymore, he doesn't show up; but the player starts getting the feeling... that they're the one being followed. They'll swear that, just for one frame, they saw Geno's hat and cape following just a few steps behind Mario; or that he'll appear for a split second on one of the paths, just standing there, staring at them before disappearing. Every path they take, just makes the graphics and music deteriorate more, until they get to the point where they decide to restart the SNES. But as they do, the game screeches and word "NO." appears on the screen and the game resets and starts right back in the Forest Maze, every time. They're already trapped, unable to escape. All they can do is continue to wander the maze as it becomes more twisted and the No-Doll shifts more and more, twisting and glitching out Geno's sprite, creeping closer and closer, Sprite, hear someone repeating "No.", over and over, getting louder and deeper until they hear it pounding in their ears, driving them mad
...
I cannot begin to imagine what this abomination would actually look like, but I'd like to challenge all the artists here to come up with their own rendition, with each one being a different form the No-Doll is capable of taking. Come on, let's make our own creepypasta! :D