Short answer, yes it's a lot worse.
Long answer, Mii Costumes are not those characters. They exist to convey the illusion of those characters, but when you place a character on the roster wholesale that is explicitly that individual character. There are some Miis that are better at giving the illusion than others - Sans, Cuphead, Bomberman of course - but at the end of the day these are still costumes. They aren't really fooling anyone - but once the announcer shouts a character's name, it's official.
The crux of a fighting game like ARMS is the ways its characters are different from one another. Even with the same fundamental gameplay essence, every fighter is given unique quirks and a bombastic personality to distinguish themselves and build a fun cast. To pile all of these characters on top of one another in the same space, sharing animations and abilities, is a disservice to everything the game stands for. Particularly when Smash wants to convey what makes a character or their game special, the last thing you want to do is imply they are all interchangeable.
Maybe it's all well and good for a simple model swap mod, but even so I've seen Spring Man placed on top of Min Min and it looks incredibly unnatural to see him doing her kicks and taunts. If Min Min had to accommodate for say... Spring Man, Ribbon Girl and Ninjara, her moveset and animations need to be dumbed down and sterilized to be some husk of a character who can do very basic ARMS-related moves and exist to perform a function rather than represent a character. To put the emphasis firmly on Min Min is to celebrate her individuality as a full character, which is absolutely the right choice.