I think the big issue with the concept of a amalgamate ARMS character isn't that they CAN use each others' arms, or even their special abilities like Min Min's kick, it's that you're sacrificing personality.
ARMS is a fighting game (duh). Each character is specifically designed to be different from each other in some way, shape, or form (with obvious exceptions like Springtron). The arms weapons they use are only half of the gameplay, the other half being whatever fighter you choose. Obviously each character has the extendable arms gimmick, but only because that's the whole point of the game. Within the game, when you discount that, there's still clear differences between the characters that goes far beyond just "this one has a parry kick" and "this one has four jumps".
The best way I can really describe it is by comparing it to another fighting game series, Street Fighter. Combining several ARMS characters like, say, Spring Man / Ribbon Girl / Min Min, is kind of like if in Smash 4, instead of just Ryu we got a combination shoto that had skins for Ryu, Ken, and Akuma. Sure, on a basic level, they'd all be able to do the basic concept of "martial arts fighter" and use Hadoken / Tatsumaki Senpukyaku / Shoryuken, and you
could incorporate things like Ken's kicks or Akuma's air Hadokens into it, but you run into a few issues:
- Ryu, Ken, and Akuma all have different interpretations of this martial arts style. Ryu leans more on punches and hadokens, Ken leans more on kicks and shoryukens, and Akuma taps into the Satsui no Hado for "evil" takes on existing moves. You can't do Ken without the flaming Shoryuken, but does it make sense for Ryu / Akuma to do it? And what's Akuma without the Raging Demon, but you can't have Ryu or Ken using it, can you? By incorporating all of their unique abilities into one character, you're creating a messy character with no real identity. Inversely, let's just say no unique abilities, and that this amalgamate shoto just uses safe moves that are shared between characters, no bells and whistles. What's the point of adding on Ken or Akuma then if they don't get to use their own iconic moves?
- Beyond just moveset, there's also the issue of animations, and so on. How do you animate taunts or victory animations that work on three radically different personalities? Try to come up with shared taunts / victory animations for hobo Ryu, showoff Ken, and villain Akuma that don't feel like stretches.
The same goes for ARMS. Even if it isn't as nearly polarizing as Ryu / Ken / Akuma, these are still individual characters that were made individual for a reason. To sand away anything that makes them different, or just throw it all together into one character, kind of goes against the entire point. The only situations I think really work is if Spring Man is the main fighter, then you could probably do Springton as an alt costume. Even Ribbon Girl has a drastically different gameplay style and personality from Spring Man, to the point where I think it'd be best if she was an echo fighter with unique animations, extra jumps and maybe some different elemental effects. I know there's a few counter-arguments towards the "unique characters can't just be alternate costumes", so I'm gonna address them real quick:
- HERO: I feel like this is kind of obvious, but blank slate JRPG protagonists are not the same as fighting game characters. The reason Hero works as a 4-in-1 is that the heroes are nothing more than avatars for the player. They wield a sword, a shield, and can cast magic, and that is the purpose of their character. To me, at least, it doesn't matter if one hero specifically can't learn one of the spells they all share, because ultimately they all serve the exact same role within their games. We even know Sakurai skipped over including the hero from Dragon Quest V as an alternate costume because he was too different from the rest (wielding a cane and being a monster summoner).
- BOWSER JR / KOOPALINGS: Bowser jr's kind of a weird case. The entirety of his character is built around the Koopa Clown Car rather than Bowser Jr. himself, so you're not really changing much by switching out which Koopaling pilots the Clown Car. And while the Koopalings really don't have much depth to them in the mainline games beyond being Bowser's bratty commanders, I feel like their inclusion kind of lends to Junior's moveset feeling generic. Besides Shadow Mario as the Final Smash (which is weird seeing the Koopalings transform into), the boxing gloves, and the Mecha-Koopas (and MAYBE the Side B being in reference to the kart piece from Mario Kart 7 / 8 Deluxe), there isn't really anything in the moveset that pulls from the Clown Car's history or the Bowser Jr / Koopaling fights, instead it's just a swiss army knife with a propeller, with various weird trinkets like forks, a squeaky hammer, drills, and so on that don't come from anywhere. There's a sacrifice of any individuality Bowser Jr. could've had in order to make it solely about the Clown Car, which doesn't excite me as much.