I really think resurrection is the only thing that would make it any good. Anyway, why does tragedy have to include death? The castle and Samus' injury (I'm okay if Red's Pokemon don't actually die, but otherwise...) are enough tragedy. If you want to kill someone, kill a supporting character that isn't playable. Or, as an alternative, resurrect (not necessarily via magic) anyone who dies during the conclusion. It isn't cheap if they aren't playable after their death in the Adventure mode.
So you want to resurrect them as an after the mode thing.
Well, what I was thinking was after adventure mode was beaten, you could go back to any stage you played before. At that point, all characters ever playable would be usable. (Like in Brawl.)
Anyway, you are right that tragedy does not need to include death. It does leave in impression though. It would make people go WTF! and leave a lasting image in their mind.
I'm all for the SSE's story becoming darker but I think the death of main characters is a bit much. I think the story should become comparable to... *thinks about it* Fire Emblem for the GBA. The story's pretty dark when you view it in context but it definately doesn't seem weird for a Nintendo game. Seriously, having a game with Mario, Kirby, and death in it would be so... odd.
FE can have people die tough.
Smash is supposed to be light hearted as far as I'm concerned, and adding in the death of a character seems to just not fit in at all. Really, this is a crossover video game with little pink puff balls, electric rats, elfs in green tights, anthromorphic animals with futuristic weapons, and everything inbetween. Trying to incorporate these characters with overly dramatic or grim themes will just end in akwardness. (Also there's the fact that any plot development with any of the series is null and void due to this being a cross over game)
SSE tried to be dark, but came off more as a power rangers rip off. If it included more tragedy and dark tones, it would have been awesome. One way to keep the story light hearted is to be melodramatic and blow everything out of proportions. If it comes off silly, but is serious, it can leave a lasting impression.
I was thinking when Mewtwo died, there would be fluff and stuff falling with the explosion. When samus gets wounded, everyone is standing around a super deformed samus with stuffing sticking out. They would be melodramatic, sad and it would come of as serious, but down right ridiculous at the same time.
As for non-canon plot. This game gives the perfect reason to use characters slightly different then they had been used before. Who cares about how it would effect the canon.