Alright, get ready for another long post. Quoted a lot of interesting replies and I'l do my best to try and respond to as much as I can here.
I mean... he really wasn't "Mario but faster" in SMB2 (and by extension, 3D World). He was that game's "hard mode" character, the same way Peach was the "easy mode". A fast and strong character, throwing items with all his might, but with poor jumps, which in a platform game, makes tough going get tougher.
And in Smash Bros, you can make that work! Toad could rush at the opponent, using, oh, say, a Poison Mushroom or a vegetable to cover his approach as he reaches his opponent and brings down the pain. (Hey, it works for Fox!) And there we have the groundwork for an archetype that Toad can fill: a small, speedy lightweight capable of dealing damage far outside his weight class, with poor ground jumps to balance it out. (And before you say that this sounds like Little Mac, Toad would actually be functional in the air.)
A couple of people after your post suggested Toad being a speedy, lightweight grappler type, which I will concede is a good base to start off with here. While I do not see it as
the hook for Toad as a fighter, I won't deny that I think that's how he
should feel on a basic level if he gets in Smash. As I've said, the main problem in my head with leaning too much into SMB2 as inspiration is that Peach got to the Turnip stuff first. Not that Toad can't have a variation of the technique still, but the problem remains in that it can't be his primary hook as a fighter.
Ignoring my "actually, they're different characters
" instinct, we can work with this too! While I will admit there's some (a lot) of overlap with Steve, who says they have to play the same? Who says he has to use the Super Pickax exactly like the Hammer? Based on the way he acts in his game, the way I see it, Captain Toad would be as similar to Steve as Marth is to Ike. Where Steve is a bit on the lighter side, Captain Toad would be like Wario, his small frame belying heavy weight. Where Steve is a slow runner, Captain Toad could be, oh, Hero's speed. Where Steve struggles to conventionally convey a personality, Captain Toad is bursting with it from head to toe.
I guess? Truthfully I almost dismissed Treasure Tracker in my original post outright because Captain Toad and "Toad" are practically seperate identities at this point, but I felt it wouldn't be fair to not at least gloss over it, and go into more depth than just the surface-level criticism that the Captain can't jump. I wasn't even really thinking about comparing him to Steve, either, more just demonstrating an instance where a Toad is given a starring role, but paradoxically isn't allowed to do much that is truly unique to him.
This brings Isabelle to mind. A non-combatant, who explicitly says she doesn't like confrontation? How would she fight?
But wait! Isabelle is an Animal Crossing character! By the nature of that series, she has to be a non-combatant! A fair point. But...
A character who helps you on your journey, giving you exposition and not much else, possibly giving you an item or two, is pretty much the role Sheik played in Ocarina of Time. And look, that character is a Smash Bros mainstay, a character that no one would dream of cutting.
Heck, that's kinda what Rosalina did in Galaxy: giving Mario exposition and access to the final battle once he collects enough Power Stars. And reading the storybook. (Yeah, she was in 3D World, but so was Toad!)
That is not a knock on Rosalina. I'm just saying she was in the same position you say that Toad is in.
Isabelle is a special case, in that she got in as a variant of Villager's play style. I don't think she would've made it as a fighter under any other circumstance, espcially if Sakurai had kept to his decision on not making the Villager a fighter, either.
As for the cases of Sheik and Rosalina, I'll admit that I probably should've been a bit more specific on how exactly Toad has served as an exposition/helper character; he's usually only there for the start of the game, and a lot of the time he doesn't really do much after telling you "hey Peach is captured, save her, here's what you gotta do to save her BTW". I haven't played Ocarina myself, but from what I understand, Sheik manages to be a key player throughout the Adult segment of that game even before she turns into Zelda, being recurring throughout that half of the game, instead of only appearing when you first reawaken as Adult Link and when she reveals herself to be Zelda. And even though Sheik doesn't do much in terms of direct action, her other actions and her design were likely enough for Sakurai to see appeal in making her a fighter; she fits the mold of a ninja archetype, down to her ability to disappear without a trace, on top of the inherently unique gimmick of transforming. While Sheik has lost the latter aspect as a hook, I imagine a mix of the character's popularity and being the first with the ninja archetype has been the thing keeping her on the lineup way after Ocarina's release. Going back to Toad, I'd say that besides getting a spin-off or a role as a unique playable party member, something that would also help him get a more upfront identity would be letting him actively help the other protagonists in the main story. He doesn't have to directly charge into battle, but anything that would make him more of an active helper, instead of someone who gets Mario's ball rolling and then sits on the sidelines, would go a long way IMO.
Rosalina was likely a similar case on having a design that lent itself to creativity in Sakurai's mind. What we
do know is that Rosalina being partially defined by her relationship with the Lumas is what led to Sakurai going with the puppet fighter gimmick, and I imagine her also being a space traveller is what made it easy to fill in the blanks with the rest of her moveset (i.e. making her other moves space-themed). Rosalina's special moves also re-iterate the point of Toad not having any singular Mario game to immediately define himself with, as Rosalina's specials primarily make use of techniques the player could perform in Galaxy (Shooting Star Bits, using the star cursor to attract items, making use of Launch Stars etc.)
This was Daisy. I know that she was an easy bake clone, but this was Daisy.
Even though I've definitely seen Daisy detractors back in my day, I'd argue even back then it wasn't as consistent as some of the ire I've seen Toad draw towards him. The only real consistent complaints I remember about Daisy as a
character were "her voice is annoying" and sometimes "her fans are pretty nutso". It pales in comparison to Toad becoming the scapegoat for arguements over character designs in Mario spinoffs, on top of the complaints of him being useless, sometimes obstructive, and (ironically enough) having an annoying voice. Even if Daisy is only a clone, that's not because she had a sizeable hatedom or anything, it's only because Sakurai felt that it would be the practical route for making her a fighter, since she didn't have much in terms of unique material that made her stand out in a way that complements her as a character. If Daisy really was a controversial character, I don't think she would've been given the Echo role. It absolutely feels like Sakurai throwing a bone for those who like her.
Waluigi absolutely used to get a
lot of flack as well, for the sake of comparison. He still does get a bit of detraction, but overall the public perception of him seems to have improved heavily over the last couple of decades. It definitely jogs the noggin on how a fourth-wheel spinoff character has gone from mostly disliked or dismissed, to being genuinely liked as an "underdog" character clamored for appearances besides said spinoffs, while a major player like Toad still has a lukewarm reception from fans.
Is this not what happened with Captain Toad? A member of a species who broke out of the mold of being "weak and useless" to go on a big adventure of their own? That's kinda what happened with Captain Toad.
Not really. Besides my point of Captain Toad not being able to fight back without temporary items/power-ups in his main game, he doesn't have anywhere near the same amount of growth that Bandanna Waddle Dee did. Captain Toad is depicted as being pretty cowardly and landing himself in danger a lot, even in spite of the few times he actually helps out the player in some of the games he appears in. Treasure Tracker is really the only time he stands up for himself, when fighting Wingo, and even then he gets briefly kidnapped by the big bird during part of that game's story. Other than that, the only other time I can think of any Toad outright standing up for himself is Wario's Woods, which isn't exactly a paragon of storytelling, even amongst Mario titles.
Bandanna Waddle Dee in Revenge of the King is depicted as being absolutely terrified of having to fight Kirby without Dedede at his side, and only does so out of absolute loyalty to the king. Besides being 180'd into being a competent and capable fighter in Return to Dreamland, BWD has overall shedded the initial cowardly and loyal-to-a-fault characteristics he started with. He actively supports Kirby in the 3DS platformers, went against Dedede when he got too obsessed with defeating Kirby in Battle Royale, and by Star Allies and Forgotten Land, he is explicitly defined as being courageous compared to normal Waddle Dees. In contrast, even though Captain Toad has become a standout member of his species, he's still portrayed as being cowardly and wildly varying in competence and feats.
You make a lot of good points, but I am one of Toad's strongest soldiers, and I will defend that little dude till the day I die
And I very much appreciate you taking the time to write out these responses to my post, and I definitely respect the hustle for Toad. I personally have Toadette as a pick I'd like to see myself. (I think she's actually done a bit more to define herself than normal Toad or Captain Toad have). I do apologize if I sound like I'm raining on Toad fans' parade at times with these posts, I have no ill will towards the character at all, but my gut feeling doesn't seem confident on him being next in line.
We don't exactly know the thought process. Was he not able to dance in Sakurai's head(this is always possible), was his role as Peach/Daisy's protector treated as the best option Sakurai can think of? Was it some other influence? Obviously we have other members of the Toad species who have some more clear abilities(Captain Toad being the most notable one, but you do have some from the RPG's who have a specific way they fight). And even then, Toad obviously has some unique properties from the games, though they aren't used much anyway. For the most part, he does what other characters do, but unlike Daisy, he's not the same bodyshape as another character to easily get him in. I'm aware many others can do the same(I.E. Waluigi, but he has a few uniquely known skills, but apparently not enough to help matters?), but Toad also has his own other moves in the Sports games that should be able to help figure out a cool moveset that isn't based around, say, Powerups as is(not that that's a bad idea either. Moreso, a unique moveset that encompasses his particular skills~).
I'll admit, my mind's a bit blank with trying to remember what stuff Toad has done in spinoffs. Only things I can remember right away is him summoning moving mushrooms for his special shots in Mario Sports Mix, and shooting spores in Smash. Would you be able to elaborate on some of the other techniques Toad and his species have been able to do in spinoffs?
I don't really think a lack of moveset potential is the issue with Toad. These elements have existed for some time now and have failed to inspire Sakurai to add him, so I generally agree with the sentiment that some new hook or a massive boost in fan demand are the main things that would put him on the map.
We've got a metric ton of fan movesets for Toad and they all work to some degree. He can use powerups, he can use a go kart, he can pull turnips or even kick around bombs. He could be Captain Toad, she could be Toadette. The varied potential is clear as day, but whether or not it takes precedent over other Mario characters who are either more vocally requested or have more compelling gameplay hooks and unique archetypes to fill.
I think your latter point on Toad having a bunch of fan movesets actually highlights the point of him lacking an immediate hook. While moveset versatility is always a good thing for a character, I could see a good reason for Toad's absence on the fighting roster being that Sakurai and co. don't see a clear-cut approach on what kind of moveset would fit Toad the best and do him good service as a character.
As far as Toad it feels like Sakurai is definitely waiting for either a strong fan push or some game inspiration in making the character dance in his head before the former gets into Smash.
I almost sort of wish games like had 3D World had designed powerups to have their own distinct quirks to the character (ie Fire Flower abilities behaving a bit differently for a Mario vs a Luigi). Had that happened, I wonder if Toad's particular features with them might have been just unique enough to warrant a Smash inclusion, as it would be his specific ice/propeller/boomerang abilities, not just the generic version.
Something like that would absolutely go a long way for Toad--if he had a unique set of power-ups in Wonder, for instance, that would let the game serve as a strong foundation for the rest of Toad's toolkit, much like how Rosalina's moveset has a foundation in the gameplay elements Galaxy introduced, and how Peach's playstyle has foundation in how she was like in Super Mario Bros. 2.
I remember one of the criteria for character selection in Sakurai's GDC slides was the following: "It's important to have something only that character can do."
I believe this is where Toad falls short. Whenever he's playable, he's always got the same moveset as Mario, sometimes being faster (and stronger in SMB2). Aside from that, he pretty much never displays any unique abilities.
I'd still enjoy a Toad moveset that focuses on powerups and the few unique things Toad has to offer, but I understand Sakurai may not see it that way. I'll also note that Toad's build is really distinct and we haven't seen anything similar to it yet.
Let's hope Sakurai saw Toadette's surge in popularity within Nintendo, alongside Peachette being featured as a selling point for the NSMBU port, and decided that a transforming/comeback character that goes from stubby mushroom to OP princess is worth it 
Like I said above, I think Toadette actually has more going for her over Toad or Captain Toad, and I would actually be more inclined to compare her to Bandanna Waddle Dee as well, primarily because Toadette
has escaped the "weak/useless/cowardly" stigma that most Toads fall under. She's been depicted as being much more active than the average Toad, to the point where sometimes she can even be rather prideful of her work at times, and other times she can be a bit headstrong. Her being able to turn into Peachette was absolutely a breakout moment IMO--while Peachette may end up being something Nintendo won't really revisit going forward, the fact that Toadette was allowed to vary in playstyle in a mainline Mario game before Toad himself says a lot about how both characters may be percieved internally. Personally, I hope Nintendo continues to push Toadette as being to Toads what BWD is to Waddle Dees, and I would honestly take Waluigi being snubbed by her next game in grace (as unlikely as I think it will happen currently).
Toad's thing is that he has a big, bouncy head. Even if you ignore his other abilites, you can create a fun moveset out of this alone.
Captain Toad has even more stuff that's unique to him, too. I'm absolutely sure either him or regular Toad can stand on their own if they ever get included.
Toad making use of his mushroom head would certainly be a unique angle, but I feel like that would be something I'd want the Mario series proper to elaborate on first before I'd want to discuss on how that could translate to Smash.
