No, Terry was not a popular character. You can look at any poll around the time and note that Terry wouldn't be on it. On the Reddit poll, which was one of the largest polls ever done with 6500 votes, Terry got exactly one vote. Source:
https://docs.google.com/spreadsheets/d/1o-l2YWOx5yNDw6c-sl3_sZAsOoFgh-piXJa1iCyvQ48/edit#gid=0
I've noticed there is a revision mentality in Smash that once it's in Smash, it must be justified as popular. If Terry was never added, then no one would say he was popular or his games influential. Let's call a Spade a Spade.
My point with Dragon Quest was to note it's more than it's (Japanese) popularity. My point was the ballot isn't having a noticeable effect on the DLC based on who's getting added (with three of them existing after the ballot). I think that holds up.
As Mr. Robotto said, not being a popular name in the Smash community doesn't mean a character isn't popular. I assume that when you're talking about Terry not being popular, you're talking from the Smash community viewpoint before his inclusion, because if that's not the case, well, I don't think discussing this will lead us nowhere.
It's not revision mentality. I didn't said Terry was a popular request among Smash fans before he was added, but it isn't revisionism to say he was popular outside Smash or that his games were influential, because that's just the truth, unless someone believes that the only existing game in the world is Smash Bros.
Also, it's just people learning things. People who didn't know about him before being revealed didn't know the extent of SNK's legacy, now they are aware, and therefore, you read more people talking about Terry and SNK in this community now that he's in. That's it. You may feel people has been hypocrite and acting like they knew Terry since always or that they were aware of SNK merits, but it's not weird if you think that Terry's inclusion attracted a lot of curious people to learn more about him and his games., and that will generate more discussions and talk about SNK.
If FP7 was, idk, Lara Croft or Crash Bandicoot, their inclusion will draw more eyes to their games even if they're known by all Smash fans, because knowing a game doesn't mean you have actually played it. So, Lara getting in would make more Smash players try the Tomb Raider series, and then they would start talking more about it. Just like happened with Joker, with Hero, with Banjo, with Terry, and yes, even Byleth. And it will happen again if we get Crash, Ryu Hayabusa, Dante, or Professor Layton, to mention a few names.
Honestly, I feel that most of times people uses the "revisionism" thing as an excuse of some sort.
About Dragon Quest, if Sakurai and Nintendo could have included DQ before they would have done it. Including Luminary and promoting DQXI S, which was already been promoted before Hero's reveal, it just makes sense when Dragon Quest has really strong ties to Nintendo (a thing that people always brings up when it's related to their favorite character, but then most of them neglects it when it comes to DQ) and Dragon Quest's popularity in Japan. So it was a no brainer move for Nintendo and Square. Not like Nintendo was being forced to promote DQXI, that's for sure.