I kinda feel where Yezen is coming from, though I can only meet him like halfway. "Bottom of the barrel" is a misleading way to describe it, since the inference is more "there's no one worse than what's left" rather than "what's left is a far cry from what's there already". And Yezen does touch on that. But I do think you can squeeze one more batch of Nintendo newcomers out of what's left before you really reach the ranks of "wait, who is this?" (for the typical person, not the Nintendo encylopedias Smash speculation turns us into).
I mean, you've got Waluigi, Dixie, Spring-Man, and a few Zelda characters. There's also Toad, Tom Nook, and first-gen Pokemon, but those probably won't be included, so it's hard to even count them. Rhythm Heaven is also a thing worth representing, but no characters from it are a big deal. After that, you still have options - there's, like, Krystal and Bandana Dee, who are popular, but are also fourth banana in b-tier series. At this point you're certainly dealing with waning prevalence. Then you have Isaac, who's super popular, but, without a new game, doesn't really do anything for a wider audience.
Then you have the series with fluid casts. The Pokemons, FEs, and Xenoblades. These will provide a more perpetual cache. However, despite Pokemon not having a problem with prevalence, they do limit their potential by always opting for the new flavour. The Pokemon du jour may have it over some other additions, but still doesn't hold a candle to not only many on the roster, but a good handful of options they're simply not choosing because they're not from the most recent gen. Like, any number of first-gen mons would be more prolific than Incineroar, for example. FE and Xenoblade can offer a consistent protagonist, but if the most well known Nintendo newcomers are coming from FE and Xenoblade, you're in a spot of trouble, as far as what you have to work with.
Also, it's true new IPs can replenish depleting ranks, but Smash includes big IPs more quickly that Nintendo creates them, if that makes any sense. Nintendo doesn't make them with sufficient frequency to perpetually have a new batch of big names ready by the next Smash. Typically you only have one, maybe two. It's fine when the wealth of existing series still has big names to float, but when they start getting to the dregs, it's going to be the new IPs and the third-parties to do the heavy lifting.
You also have to keep in mind what's being argued. It's not that Nintendo doesn't have anything to work with - Nintendo has a stable of characters plentiful enough to keep Smash going perennially. It's not that Chibi-Robo or Andy or Starfy or whoever isn't a "good" character, it's that they can't offer as much in terms of recognition. Characters are what move the product, and the whole conceit of Smash was to use well-known characters to draw people in. Quality as they might be, potential as they might have, characters like Saki and Wonder Red and Ray MK just aren't that well known. Including one or two would be a nice little nod, but overall you're better off going with third-parties people recognize, if that's all you have to offer.
So, let's make a roster:
- Waluigi
- Dixie
- Spring-Man
- Skull Kid/Midna/Tingle/Impa/other Zelda character
- Rhythm Heaven character
- Bandana Dee
- Krystal
- Isaac
- new Pocketman
- new Marth
- new Xenowaifu
- new IP
- new IP
- weird Sakurai pick no one expected
That's fourteen original Nintendo newcomers, the same as Smash 4.
And that's a pretty decent selection. But where do you go after that, in terms of first-party? The bottom six you can reuse, and there will still be Mario and Zelda characters from which to draw... but then you just have to cross your fingers for successful new IPs, otherwise your headliners are Captain Toad or Paper Mario, a Zelda character that shows up on occasion, and a Pokemon from Gen whatever. It's a little anemic.
Of course it's still Smash. So when people call it a celebration of video games, that's not the whole truth. It's two celebrations - one of video games in general, and one still of Nintendo. So, do you need any specific remaining Nintendo character? Not really. We don't need any character at this point. But do you still need Nintendo characters in general? Well, yeah. It's Smash. You can't ever lose the Nintendo aspect, but eventually the encroaching third-parties will probably have to take the wheel so you still have someone recognizable leading the newcomer charge.