It's why I never liked the Arrows. They kind of sucked. Young Link's are slightly better, but Toon Link's are meh. I would've preferred the Hammer, perhaps. Might actually be a good new move. Well, can't wait to see our customization choices(and it'll remove clone moves).
I'm hoping for Ice Fire Light and Bomb arrow alt moves, maybe a sliver one too. Even if the light arrows clash with Zelda or Sheik's final smash(if it stays the same for one or of them one of both of them).
He's a very capable fighter physically, and is one of the strongest charaters in the Zelda series, even without his sword alone.
While I don't see any reason to suspect in any given game that Ganondorf couldn't conceivably just punch Link to death(he's always a pretty burly fellow and he's got the triforce of power which...
maybe gives you enhanced physical strength? It might just give him more powerful magic) I've played every Zelda game with Gannondorf in it and of the top of my head I can't think of a single instance where gannondorf fights with his hands and feet. I think...maybe he kicks you in Windwaker? And he tosses you aside in a cinematic. Other than that there was a OoT poster where it looks like he's about to punch Link and that's about it. So while he could conceivably fight with his limbs, it's really not at all associated with his character. In a similar sense you could say give Ike a spear since he should probably know how to use one, but he never actually uses a spear in any of the games he's in.
As for the sword, while he doesn't ever have a sword in OoT(though Ganon
does like you said), the reason why people wanted him to use a sword in smash pre-wind Waker was because people got in a huge tizzy about Ganondorf and Link swordfighting in the spaceworld 2000 trailer-
http://www.youtube.com/watch?v=wBtAvX4Pkyk
The sword Ganondorf has in that trailer even shows up in Melee during one of Ganondorf's win poses. Then by the time brawl came out there was Wind Waker and Twilight princess both ending in big sword fights with Ganondorf meaning in two out of three Gaonondorf's appearances(as opposed to Ganon) he used a sword prominently and people REALLY wanted him to have a sword, especially when they used his TP design which is mostly known for his swordfight. And Sakurai even directly addressed that by giving him the sword taunt and making a post in the dojo asking Ganondorf why he doesn't use it. Also if you want to go out on a limb and talk about weapons in general Ganon/Gannondorf uses one in every game except the first and the CDi games, though Ganon prefers the trident over sword(which I know a lot of people want him to have in smash.
Both of those aside I'd agree with you that the magic is the primary aspect of Ganondorf's powers(he is a dark wizard after all), though in recent years Nintendo seems to be trying to put the sword to equal importance at least in regards to fighting, though the magic still has more plot significance. And the ping pong attack is definitely his most iconic attack.
ANYWAY as far as Ganondorf in smash is concerned I'm fine with the way he is now. He's fine minus severely needing buffs and honestly pretty unique and I'm generally against giving characters a complete rehall. Plus two of my friends mained the hell out of him in Brawl so it just wouldn't be the same without him dominating every damn category on my records list.
I can think of several ways you could implement his sword or magic without totally rehalling him though. Like people said you could let him switch between sword and barehanded though that might clash with the no double character thing, though you could tone that down by making it change only his A or his B moves(and either way you aren't changing models which makes it HUGELY different from the previous transform characters. More like a stance change or weapon change in Soul Caliber or Mortal Kombat, and honestly Smash is kind of overdue for a stance character). You could also keep his moveset mostly the same but add in just a couple moves that incorporate his sword or his magic. Or...just make another Gannondorf as a separate character. We already got two Links aand there's possible evidence two Zelda's were planned for brawl. Have TP or Oot Gannondorf use fists/magic and Windwaker use swords, or however you want to mix and match it. Or have Ganondorf and Ganon separate and have Ganon use dat trident or his swords from OoT. Seriously there's like a gajilion ways to address the "Gaonnondorf issue" as it were.
And this post ended up SOOOOOOO much longer than I intended.