I think dream1ng is more or less right on the money. Toad is practically a fundamental character to have in any Mario game, yes, but there's nothing really pushing him in those games from a "unique fighter" perspective. Toad is usually treated as a quintessential NPC character in a lot of Mario games, thus meaning he isn't "in the fray" a lot of the time, and when he
is playable in games, almost every case of that has him share practically all of the same moves as the other playable characters you can select as (see: NSMB Wii and U, Super Mario Maker 2, Super Mario 3D World, Super Mario Bros. Wonder).
Probably the biggest setback that has been dealt to Toad, is Peach. No, I'm not talking about her using Toad as a special move, I'm actually talking about Peach having her playstyle draw from Super Mario Bros. 2/USA. If Peach had been designed any other way, I could absolutely see Toad being a shoo-in with a moveset drawing from SMB2's game feel, but not only does Peach famously use the vegetables from that game in Smash, but her inheriting the float from SMB2 only further buries the proposition of basing Toad off of SMB2 as well IMO. A mid-air float is intrinsically more interesting for a character's toolkit compared to Toad essentially being designated as "Mario but faster" in 2.
But what about the cases where Toad is unambiguously the star? Let's look at the piddly two examples we have in this regard. Wario's Woods is very simplistic in its gameplay--throw enemies and bombs around in order to arrange them in a way to clear the screen. Unfortunately, that means there really isn't anything that makes Toad any more distinguishable from a toolkit perspective than how he was in SMB2, since that game's primary mode of combat is also just picking up and tossing objects around, and thus the game isn't really useful with giving Toad a stand-out identity.
Captain Toad's Treasure Tracker is an interesting departure from the usual Mario platforming fare, but unfortunately one that I (and likely Sakurai) do not view as interesting enough from a combat/moveset perspective. While the criticism of Captain Toad being unable to jump is a basic one, it is this disability that overall paints the rest of the gameplay, as dealing with enemies in Treasure Tracker is either through indirect means (such as falling onto enemies with good use of level geometry, or using your headlight to scare off Boos), or through external assistance. Your only methods of direct combat in Treasure Tracker are turnips (which I have already explained why they alone do not help distinguish Toad as a fighter), a potted Piranha Plant (while I dislike Piranha Plant as an inclusion, I do not see
Toad being the character to use it as a move), and the Super Pickax (which is pretty much just the Hammer item in different clothing, to the point where Treasure Tracker outright plays the Hammer music when you pick up the Super Pickax). Once again, Treasure Tracker mainly paints Toad as a non-action character when he isn't borrowing the same exact moves as Mario and co.
And I think the semi-consistent portrayal of Toad as a non-action character is ultimately hurting him on two fronts--firstly, he doesn't have immediate fighter potential. This is not me saying that Toad has nothing to draw from as a fighter, far from it, but more that there isn't really anything to Toad that would make someone look at him and immediately go "I know how he could fight!" The angle of him using a variety of Mario power-ups for his moveset
is a good idea, and what I would go for if I designed a moveset for him currently (since you could also have the angle of it referencing how Toads have been semi-consistently shown as power-up providers in mainline Mario games), but I could probably see Sakurai thinking that a moveset concept like that wouldn't really highlight Toad as a
character--basically, tying back to my point that Toad doesn't really have anything unique from a combat or movement perspective in the mainline titles where he is playable.
Toad's depictions in games where he
isn't playable don't really offer him any favors, either. At best, Toad usually serves the role of someone who gives you advice or exposition to help you along your way, and not much else. Other times, he serves as a miniature goal across your journey, as someone you rescue before Peach. At worst, you'll have games that outright portray Toad as being weak or useless (such as Super Mario Advance 4's opening, where he fails to stop Larry from transforming the Grass Land king, or Super Mario Sunshine, where the Toads contribute practically nothing in terms of helping Mario or stopping the antagonists), and sometimes even lampshading said uselessness (mainly jokes about how Toads are supposed to bodyguard Peach, but almost always fail to prevent Peach from getting kidnapped countless times). And nothing to say of the few times where Toads outright become obstructive to your progress in a game.
Overall, the portrayals of Toad as either being functionally identical to Mario (with maybe faster running speed) in gameplay, or an NPC with a pretty poor track record action-wise, are what I think are severely hurting his chances overall--not only in terms of being a fighter with an immediate, compelling hook to him, but also in terms of having any fan demand that could overcome the former issue (which is something that I feel Waluigi very much has the advantage here currently). Toad most certainly has fans, but I'd be hard pressed to find a noticeable group of vocal, die-hard fans seriously supporting him for Smash. A lot of people that like him usually don't have him as a particular favorite or are generally just passive about liking him, and on top of that, Toad also has some pretty sizeable disdain in the Mario community, from what I've seen. There's a lot of sticking points against him; his portrayals as being weak/useless in certain games, his voice being seen as obnoxious or grating to some, his portrayal in the original Super Mario Bros. being seen as time-wasting to many, him being at the center of Paper Mario discourse for over a decade...Toad is very much a love-or-hate character, which is pretty disadvantageous when it comes to getting demand for Smash, on top of people who see his current Smash portrayal in Peach's moveset being enough for the character,
and being a character that'd likely get heat from those who support other, more currently-demanded Mario characters.
Just to put things in perspective, I want to bring up a character that is ostensibly in the same boat as Toad, and that is Bandanna Waddle Dee. On a surface level, Toad and BWD are similar, being distinguished members of a common race in the games they originate from, and usually serving as a third or fourth player option when they get playable roles. However, to me, this is where those similarities end.
Unlike Toad, Bandanna Waddle Dee has been given a lot in the Kirby series to let him stand out as both a character and as a fighter. Sure, the character did start out being portrayed as similarly-useless, being the first-round opponent in Megaton Punch and a joke miniboss in Super Star Ultra's Revenge of the King, but this portrayal would 180 as early as Kirby's Return to Dreamland. Unlike New Super Mario Bros. Wii on the same system, Return to Dreamland's four playable characters all had distinct playstyles--Kirby had the traditional gameplay, Meta Knight specialized in sword and flying techniques, Dedede was tanky and specialized in hammer moves, and Bandanna Waddle Dee was given a permanent spear to fight with. While Kirby had copy abilities that could emulate the other three characters to some degree, the series has already done more to give Bandanna Waddle Dee a fighting identity in this one game than the Mario series has done for Toad in multiple games. And BWD's further playable appearances would only hone in and sharpen on giving him an identity--that despite being a member of a common, weak race on Popstar, he aims to rise up from what is assumed of Waddle Dees and prove that he is a capable fighter in his own right, to the point where he is willing to stand and fight against King Dedede if the latter is being unreasonable or possessed. Kirby and the Forgotten Land is, in my opinion, the current culmination of Bandanna Waddle Dee's identity as a fighter, since his spear moveset in that game is entirely unique--Kirby does not have an equivalent Spear copy ability he can use by himself.
And it is through this growth and positive development that is why I think the character has such a large demand to be a fighter in Smash--not only does he have an immediate hook by being a spear user in a game currently lacking anyone else notable in that department, but he also has the compelling aspect of being a character who broke out from his original mold of being as useless as any other Waddle Dee in the Kirby series. That is why I think comparing Toad to him isn't seeing the whole picture. In a lot of people's eyes, Toad has yet to escape the stigma of being a character who usually doesn't jump to action, and when he does, he's either batted aside by others, or forced to play like the other, more prominent playable characters.
Would I personally be opposed to Toad? Not really, but he's not the Mario character I would pick to add first. And I would most certainly say the chips are currently stacked against him here. Of course, I'm willing to be wrong on all of this if Sakurai
does end up seeing potential in him with how things currently are. But as it stands, what I think would actually help Toad's chances a lot would either be giving him an action/platformer series starring him, or giving him more opportunities to shine and develop his own merits--perhaps a new Super Mario RPG game where he is an important party member?
To close out, I will say I did not expect to write all of this about Toad in particular, but
dream1ng
's points absolutely got the gears turning in my head about Toad's situation and why I personally have not been inclined towards him in my predictions, and a lot of this just came out naturally for me.
I'm absolutely willing to debate about this further if I can, and feel free to point out any grammar mistakes I have made here since it's like 6 AM here lol.