Well...The protagonists can't give off the feeling of dread like the monsters can, but even the monsters can't really do much in the fear department since the monster and the other player are on equal footing more or less, dying isn't really that big of a deal, and the atmosphere is completely different. Nemesis T-type did a decent job of giving off that horror feel in Ultimate Marvel vs. Capcom 3/Infinite, but even then it just feels like a monster from an action flick rather than a horror game. Super Smash Bros. makes this even worse because you'd be trying to make a slow but oppressive (generally an oxymoron in this series) character that's unnerving in both dark stages like Frigate Orpheon and Dracula's Castle, and stages where everything's cutesey like all of the Yoshi stages.
The protagonists on the other hand can give the feel of being in the situations horror games put you in; every shot must count and you have to commit to an option in order for the problem to go away, but if you miss you can be severely punished. Then again if you wanted the most notable character from the game the monster might still be your go-to rep, but you will be hard pressed to represent it accurately, especially in Super Smash Bros. where they can't be bloody or too disfigured.
The biggest thing is that protagonists tend to either be soldiers or everymen, so when you take them out of context, their abilities and aesthetic don't really convey anything about the nature of their games. Granted, Captain Falcon, Fox, etc. are a thing, so that wouldn't be unique to them, but either way, if you're going to incorporate this kind of series, it feels like a waste to me.
You could try to come up with a unique 'horror' mechanic for some of them, I suppose, but there's really only a select few that particularly lend themselves to it, and it's difficult to think of a meaningful way to implement it. Spin the panic system from Clock Tower into a mechanic, for instance, and it either is a straight-up
detriment to the player or becomes just a thematically-different take on a berserker (low control and erratic movements, but increased offensive abilities).
Or you could incorporate the monsters into the moveset, but this tends to also feel awkward outside of very specific contexts (like Alexandra summoning a horror or a trapper). They went this route with Jill in MvC2, but it feels kind of odd, and I don't see it working especially well in Smash.
Honestly, if they can't adapt one of the horror antagonists properly, unless they can come up with something
really unique, target one of the few protagonists that logically fits, or just go with someone who is over-the-top fun (Frank West, Kyoya Suda, Princess Heart Heather, etc.), a stage is the best representation they can go with. "Silent Hill" is the best representation of
Silent Hill, after all...
Yes, I know. The Sans costume basically deconfirms him as a fighter. But Undertale does have other characters. It is entirely possible Fox and/or Sakurai could have ended up disagreeing with popular consensus regarding the character to best represent Undertale as a series.
Bob it is.
: Funky Kong
alutena: Medusa
