I am personally fully for redesigning
himself* - but I'd also be certainly for a second Sonic character. Would probably happen in a future Smash 6, but it's worth exploring nonetheless.
I do lean towards Eggman because, well - he's one of the few villains who is mentioned in the same vein as Bowser. Also, he occupy the "mech pilot" niché that's not been explored much at all (outside of
perhaps). He does have a mech with arms in Sonic the Fighters, which could be a solid basis (hey, current Sonic pulls some moves from Sonic the Fighters, so...). A lot of his attacks would be rather straightforward, so giving him some mix-up tools in his mobility (whether it's a short flight or something else) would be a plus. Compare Jr., who has Clown Kart Dash as his primary mobility tool.
As for Shadow - it's worth it to explore him as a Semi-clone at least. The Chaos powers alone would help differentiate him from Sonic's more CQC-heavy style. Since he'd have longer effective range than Sonic and be as fast, it's probably important to balance that by either making the Chaos abilities more commital or his disadvantage poorer than Sonic's to encourage a more aggressive style out of Shadow.
Also for Tails and Knuckles, support them too - but I don't have much more to add there aside from what Upauli said in the video.
*There's a major problem with the current Sonic design since it accidentally encourages evasion and thus the playstyle is not fun to play against. The over-use of ball moves in Sonic's moveset does contibute to the problem - especially since it's very difficult to distinguish Side-B and Down-B when playing against him. It was fine in Brawl when he was a last-minute, but that same style's been kept for 4 and Ultimate. Which is a major missed opportunity.
As for other Sonic stages, aside from Casino Night I agree with you that a Colors stage would make a lot of sense. Pumpkin Hill would potentially be amazing... then again City Escape would probably take the "SA2 stage" slot. I get that they wanted to promote Lost World when Windy Hill was included as a stage in Sm4sh, but if they were going for that they could've also gone for the relatively early Frozen Factory too (that could include elements from Casino Night and Ice Cap too). Windy Hill's not the end of the world, but there are certainly better stages.