I'm going to be honest, I've never heard the argument that Geno is fine in a non-playable role to the point that getting him as a full playable character is unnecessary before. If that were true, we wouldn't be having any discussion about Geno because he has his Mii costume and his spirit. You can go to the Geno thread to see how well those went over. Like with the vast majority of characters, non-playable representation is nice but it doesn't fully satisfy fans who genuinely want those characters playable.
This is a misinterpretation of what I said. What I said is that Geno's merits do not compare favorably to lots of other popular characters; the "worth" or "necessity" here is relative to others they could devote those resources to. Because what you say about fans not being satisfied with the auxiliary representation can be said about any character whatever.
Writing off Geno because there are other Mario candidates is missing the point. Geno fans don't want a general Super Mario RPG character. They don't want another Mario character generally, either. They want Geno because they intrinsically like the character. It's also not like we rarely get Mario characters either to the point where expecting more than one is unrealistic. We get multiple Mario characters more often than we don't.
There's no "writing off," just honest comparison with other characters where Geno falls short. I never said there aren't Geno fans who want the character for his intrinsic qualities (of course he has his fair share of bandwagoning fans, but this is not exclusive to Geno)*.
I don't think his fans would be satisfied with another Mario character either, no. But the fact remains that those other Mario characters, and plenty of others besides, also have a ton of fans who want them for their intrinsic qualities and who have other reasons and motivations to be added in addition to that as well, to a point that Geno lacks to an extreme degree. And no, getting another Mario character doesn't preclude Geno or vice versa, but it's not like we're comparing Geno to just one character here. Geno falls short against a host of others who look better on paper than him.
* I would theorize that, to an extent, Geno's popularity stems from the effect of being an extreme underdog. He's just significant enough to be above rooting for a true no-lifer like some rando NPC, but not significant enough to ever be considered a typical choice. And being from Square made him (back in the day) seem unlikely but not to the point of total impossibility like, say, being from Sony would make him seem. Under those conditions, one big break like being mentioned by Sakurai would be the only thing necessary to get him to blow up.
It isn't all his fans of course, but sometimes the whole thing tends to come off like the collective ego of the fanbase asserting that it can get anyone in by barking loudly enough. A big hive mind coalescing to prop up a character who could only possibly get in by their sheer will.
So yeah, I do question the legitimacy of some of his popularity, but I am not motivating my arguments by these points and simply conceding that he is popular because it's only a speculative personal theory.
Super Mario RPG remake wasn't successful because of Geno, but it was popular enough to get the IP back on Square's radar and Geno is a massive fan favorite from that game. Fire Emblem: Awakening wasn't successful because people immediately fell in love with Robin and Lucina, but it was a massive enough success to get a Smash character. Robin and Lucina were both well-liked, so they made it into Smash for Wii U/3DS. Same with ARMS and Min Min and Xenoblade 2 and Pyra/Mythra. Success gets the game in the door and popularity helps a specific character from that game, even if the game isn't flying off the shelves specifically because that character is in it.
Sure, a game's success helps all the characters who are in it. But there's very little about SMRPG remake that would suggest it's likely to get a dedicated rep, namely its status as a mid-tier Mario spinoff and an externally developed remake. There's a very poor track record there.
And we can trace how characters like Robin, Min Min, or Pyra/Mythra got in and see how that doesn't apply to Geno. Robin is the protagonist unlike Geno and Awakening was a mainline landmark game in its franchise which SMRPG is not. Lucina is a clone. Min Min represented a brand new franchise (and one without a clearly defined protagonist, making a fan choice as the rep more easily justifiable). And with Aegis we already know the protagonist Rex was considered but they couldn't get his concept to work; and again unlike Geno, there weren't a bunch of other same-series choices that would have clearly superseded Aegis in importance and recognizability, the game wasn't a remake, and etc.
And right, none of those characters were third parties that had to be licensed, either.
In terms of Square wanting to promote other franchises, it seems like most of what they'd want to promote in Smash, they already have. Final Fantasy, Dragon Quest, and Kingdom Hearts are already in Smash. That just leaves Super Mario RPG, Nier, Mana, and Octopath Traveller in terms of big IPs. Mana and Octopath don't have a ton of Smash demand, so it would likely come down to Geno and 2B. I think both have a good shot of inclusion, but Geno is definitely the more popular Smash candidate and is likely the option that Sakurai would go with, given that Geno was planned for Brawl but couldn't have been included.
Well for one they would probably be more motivated to keep FF, DQ, and KH in Smash than to put in Geno. Given the limited nature of third party spots and the likelihood of cuts next time, he's not out of the woods in terms of competing with those, to be honest. I feel like they would very likely also prefer others from FF at least over Geno as well. And then the other ones you mentioned, yeah, I could see them wanting any of those over Geno because again it's franchises they have more total control over, and which aren't already propped up by having Mario in the game more so than anything Geno could do. Point is he's not a slam dunk even if we're guaranteeing that all Square vets come back and that we're getting a Square newcomer.
Of course, it's not at all like we're guaranteed to return all the Square vets or get a Square newcomer. So even if it weren't quite as bad for Geno in the Square department as I've been positing, that's only one of many hurdles to begin with.