I have yet to play the ARMS franchise but in the meantime I've been gathering information from the forums and video guides to the game so I'll give my current conclusions. My guess is that they'll only use one character from ARMS and they'll use multiple glove types as well as different character abilities/traits from other characters where it still makes enough sense. Their alternate costumes will likely just be recolors based on some of the other characters.
As for who it'd be, falling in line with my previous statements, my safest bet would be Ribbon Girl as her special mechanics fit naturally into the game and she is a semi-protagonist that currently has less representation in the game than Spring Man. Plus, she's also a female character which I know some people would be especially pleased with.
From a gameplay perspective, like many fighting games, ARMS is generally a lot about keeping a tempo/momentum of pressure against the opponent and Ribbon Girl is one of the characters to more closely resemble that while keeping within the mechanics of Smash.
However, if Nintendo were to veer off of the typical path then I could easily see a character like Min Min, Ninjaro, or Kid Cobra being added. I think these are still less likely picks though because of the different mechanics they have that are either quite different from Smash or would be difficult to balance.
The character I would pick from the series though and someone I think people are somewhat underestimating is a big body representative for ARMS, that being Mechanica. Whichever ARMS character is added, I expect their skill ceiling to be very high as there are many technical aspects to the original gameplay and when adding that to Smash and trying to balance it against the rest of the cast I think that is the result. Point is, Mechanica I think would be one of the better fitting additions due to the innate technical and balancing issues that the team is having to deal with. Mechanica aside from gameplay would also be one of the more unique fighters in terms of model because of being big and using a mech. We have very few big body characters in Smash so another addition sounds great to me, while giving the far hitting character a similarly big weakness. Gameplay-wise, she'd probably be a combination of Peach/Bowser/Byleth. Okay… That sounds kinda scary actually
One of the main advantages against an ARMS character is how reactable their moves are so I'm curious to see how that all pans out and if they will include the mechanic of sending arms one at a time for subsequent follow-up attacks seeing as thats such a core part of the game.