Okay, I can definitely see that they had their heart in the right place with this item. And depending on how it works out, it could definitely be a great addition to the strategy of teams matches, which is receiving more attention near the end of Melee's lifespan. I think that they're going off the concept of stock tanks.
Now, if this item gets rid of your A moves in favor of throwing it(which it seems like it will), It won't help at all. It'll make you hella vulnerable for as long as you're holding it so you'll essentially HAVE to use it as soon as you grab it so that you won't get *****. Now, a character like Peach won't really have to worry about this because SHE can float-cancel aerials all day long even while holding at item. What about everyone else? They'd be forced to either A) spam special moves or B) grab, toss immediately and pray that it's not intercepted.
If it behaves more like a pummel item where you keep your moveset or get a modified one and can throw it with Z, I think it could be pretty awesome. Grabbing the item and still being able to choose WHEN to use it could lead to really great doubles matches. To balance it out, I'd say maybe make you A attacks weaker OR have the healing effect drain the longer you hold on to it.
Still, I can see both sides of the argument. Losing your A moves could possibly ADD strategy to the match. You wanna fight? Don't pick it up. Wanna heal? Pick it up and risk you being *****(because you can't attack) or your partner being *****(because you can't exactly help). I dunno. Disadvantages seem to outweigh advantages.
Great update though. Sorry if someone said this before. I didn't exactly read the thread