I've been watching this thread for a while now, but recently, I'd been playing with items a lot, just to get better feels for how each works, so I figured I'd throw my own two cents in to help fine tune this list. I mostly agree with a lot of these, but there are a few concerns I have, so here we go...
Star Rod [NEUTRAL] - A unique item in that it is the only item in the game capable of acting as both a projectile and a bludgeon (without having to be thrown), the Star Rod opens up a lot of interesting strategies. The fact that different characters act differently when shooting stars (some characters can fire two stars in quick succession, while most are restricted to firing off one star at a time), as well as how a star can be launched from both tilts and Smashes, lends itself to a level of strategic value that other bludgeons can't compare to. Add to that an average risk/reward, average strength, and average range and you have an item perfectly suited for tournament play. Accepted for play.
What you said about the Star Rod is all true. Smacking someone in the face with it or hitting someone with the stars isn't all that strong, and it even has its share of risk when doing so. The issue here lies in its throwing strength. Hitting an opponent with a thrown Star Rod provides a very troubling kind of knockback which can kill an opponent really easily.
The first thing about it is that the knockback from throwing the Star Rod is really high to begin with. It's capable of sending opponents really long distances even at mid-percents, which makes it a very potent throwing item. Then... there's the trajectory it sends you in. If you nail an airborne opponent with it, it sends them in a very hard, lazy arc downward, similar to the trajectory Meta Knight's airborne Shuttle Loop sends you in. If you hit a grounded opponent with it, it sends them sliding across the stage very quickly, similar to the trajectory Jigglypuff's Dsmash sends you in, but like a billion times stronger or whatever.
I think that the base knockback stored within this item, combined with the crazy trajectories its capable of sending you in warrant further investigation, as this kind of throwing power may serve to be at the destructive level of the Home Run Bat, which is set as a Counterpick item solely for being a really powerful throwing item. Just head into Training mode and see what I mean. It may be tame enough to stick around as a Neutral item, but it definitely needs some testing done first.
Motion-Sensor Bomb [NEUTRAL] - The Motion-Sensor Bomb is the very semblance of strategic item usage. Incredibly simple to use, the MSB stays on the field for a preset amount of time; unlike in previous games, if a MSB has not been detonated after this period of time passes, then it simply disappears. The MSB has decent knockback (when detonated, not when thrown), and is usually considered a low-risk/medium-reward item; it is only low-risk if you remember where you placed it, and is usually not detonated in tournament play other than by extreme accident, as they are easy to spot and easy to fight around. If both combatants remember the position of the bomb, it more than likely will never be detonated, but it is very useful as an edgeguard when set on the side or edge of a stage. The MSB is also the only explosive item that cannot detonate until after it is thrown; this cannot be stressed enough. By its very design, the Motion Sensor Bomb cannot, under ANY circumstances, detonate until thrown. Disregard ANY anecdotal evidence you may have heard to the contrary; this point has been erroneously dredged up many times, and this thread has debunked this myth every time. Very balanced for a bomb item, the MSB is approved for item play.
The Motion Sensor Bomb... I've had it explode on me for attacking it before it was activated. Like, I've hit it with moves AFTER it spawned out of the air, landed on the ground, and remained unmoving, and it still blew up on me. However, it seems like only specific types of attacks can set it off, because I can't seem to detonate it with every kind of attack, but the fact remains that yes, the MSB CAN explode without being set, I'm sure of it.
I'm gonna do some field testing to better understand what does and what does not cause an unset MSB to blow up, but with this in mind, it does fall into the same category as Blast Boxes or Gooey Bombs, where it could theoretically spawn on top of your attacks and blow you up. Keep it in mind...
Smart Bomb [BANNED] - An item built off of the concept of chaos. The Smart Bomb is incredibly finicky, having marginal chance to either fail to detonate or to misfire. What truly unbalances this item is the Smart Bomb's blast radius; it is entirely possible to miss the target but still have him/her get caught in the resulting blast, and so this item frequently rewards players who lack the skill to properly aim the bomb. Though it is possible to tap DI to the side of the explosion to save oneself from the brunt of the knockback, this item will do at about 33% damage if a player is caught in the blast, and though it cannot kill until the ~140% range, it causes dramatic effects on the battle. Due to the extreme ease of use and the disproportional amount of damage and knockback, this item has been deemed too 'broken' for item play.
With proper SDI or TDI, one can easily escape from the CENTER of the blast radius and get out with maybe 5%-10% damage with no real knockback, and that's about it. It's definitely not an overpowered 9999 damage machine once people learn how to deal with actually getting hit by it.
I do, however, agree with the fact that it doesn't take much to actually hit an opponent with it, and it can intrude on a fight when it spawns, and that may not be everyone's cup of tea... but I don't believe the effects of the item are SO destructive that they fall under banning criteria. Perhaps some consideration can be taken in moving this item into Counterpick with this in mind?
Hothead [COUNTERPICK] - The Hothead is a largely situational item, but as a projectile it is pretty powerful. It is large, which makes it difficult (in proportion to most other projectiles) to dodge, but it does have flaws. The Hothead does terribly on stages with walk-off edges as it is unable to circle around the stage like it can do on floating levels, and even on some floating levels, the Hothead can be finicky and refuse to circle around the stage; this probably can be marked up to irregular level shapes confusing the item AI. If there are floating or secondary platforms on any level, the Hothead can be easily dodged by simply staying away from the main platform, rendering it useless (aside from a pressure item). Ultimately, though, the Hothead gives the player who deploys it the advantage; it can cover stages very quickly and efficiently, does decent knockback even at lower percentages, and can grow by touching it with anything possessing the fire, explosive, or electrical properties, in addition to the fact that the player that sets it is unaffected by it. It is, however, possible to reflect a deployed Hothead with certain moves (or by perfect shielding as it is thrown) and change its master. In addition to this, the Hothead gives any character with fire- or electric-based attacks a 'mini-buff' of sorts, as a Hothead's contact with any attack with these properties causes it to grow in size, speed, and power. I would be remiss if I didn't note, however, that there are many problems with reflected Hotheads, especially if they have already been fed Fire/Electrical/Explosive attacks in that glitches exist in a few situations with a few reflection moves (for instance, Pit's Side-B) that cause even a tiny Hothead to become a OHKO killing machine, impossible to stop or reflect. The causes of these situations are currently unknown, and thus cannot be accounted for mid-fight. We will approve the Hothead for tournament play pending further review and input from the community, however we will move it to the counterpick list to reduce its possible effect on battle.
I'll give my own input for the Hothead.
If you grow the thing to its maximum size, or if it's reflected too many times(even at a minimum size), it provides knockback that kills even at 0%, just as you said. Situational as it seems, I believe that the Hothead has far too much potential to be able to change the tides of a match. It is also capable of traveling around maps extremely quickly(although its speed is random every time), causing very threatening safe zones for opponents to have to deal with, and it has the annoying property of stopping projectiles that hit it(even it is not a projectile that will make it grow).
If Hotheads are ever made active in matches, I would not give a second thought to dropping Lucario in favor of a character with a reflector for that match, for example. They are legitimately THAT powerful and intrusive to the opponent, and should not be legal simply due to the destructive amounts of damage and kills they are capable of producing in a single usage.