Slippy, Duck Hunt Dog and Balloon Fighter are way too iconic for this IMO.
Eh, KK Slider is a tertiary character from a 1st tier Nintendo franchise, while Slippy is a secondary character from a secondary tier Nintendo franchise. I think that evens out, and both are far less iconic than Diddy. The entire first row is really the "star power" for this game in my eyes.
Slippy is the sort of character that will likely never get into a mainstream Nintendo cross over, as Star Fox slots are limited and he has Fox, Wolf, and Falco (as well as arguably Andross, Krystal, and Peppy) in front of him. You can even see this with Mii hats - they have Fox, Wolf, and Falco... that's it. I see this hypothetical game not as a coming together of a bunch of has beens and never weres, but as a chance for lesser used characters to shine. This would really suit Slippy in my opinion.
Duck Hunt.... I kind of agree with. The thing is that the franchise itself has been dead since the mid 80s with the exception of a mini-game homage in Wii Play. The characters themselves don't get used that often, so I though it would be nice to include them. I do get where you are coming from with this one, though, and depending on the actual theme of the characters in the game it might be best to not include them.
I completely disagree with Balloon Fighter, however. Balloon Fight was one of my first NES games, and I loved it to death. It's a fun game.... but it's not iconic. Really, if it weren't for Sakurai's apparent fondness for the franchise and the Nintendo Land Attraction (and before you bring up it's importance remember that Takamaru had one as well) very few people would remember that series.
It was a really, really blatant Joust clone.
In any case, I would argue that Ice Climbers are more iconic and important than Balloon Fighter, and not because of Smash. Ice Climber was actually bundled with the Famicom in many European countries, so the series had wider over all exposure. If you have problems with one of them being included you should logically have a problem with both being on the roster.
At the end of the day, though, if you really want to replace Balloon Fighter we could always bring in Alice, the much more obscure protagonist of Balloon Kid (the Gameboy sequel to Balloon Fight.)
If the opening cinematic of that Diddy Kong Racing game isn't Diddy and Dixie meeting up with the starting roster of KK Slider, Riki, Ice Climbers, Slippy, and Viridi.
All angered because they weren't included in Mario Kart 8/Smash Brothers over the people from their series that made it into that game. Then fail.
Absolute fail.
In the imaginary world where I wrote the script for this game the plot would be as follows: Captain Rainbow, champion of discarded franchises and perpetual underdogs everywhere, would approach Diddy Kong to set up a new racing tournament to raise awareness for forgotten games and characters. Perhaps do this as a voice over or letter or something. Diddy, having experience with this sort of thing and feeling slighted about the Mario Kart 8 situation, starts recruiting racers.
We would see this in the games intro. We would also see Tatanga waiting by a mail box with the time of day cycling behind him. He would eventually realize that he was not chosen a racer (making him EXTRA forgotten) and he would go out and plan his revenge, making him the villain of the games story mode.