Alright, I'm really confused now.
First of all, HOW STUPID CAN YOU GET? Dogs can't be in because they're not associated with fighting? REALLY? Are you honestly saying that nobody associates dogs with 'Bitey bitey Mauly Mauly'?
And saying he doesn't fight, he just leaps into the bushes and scares out the ducks? That's bull. The same argument can be said about Captain Falcon(He doesn't fight, he just races on a racetrack). What's that? Captain Falcon was a Bounty Hunter offscreen? Well, Laughing Dog is a DOG offscreen. You know, descended from wolves, and hey, he's a hunting dog, he's obviously trained to, oh, what was it...HUNT!
Yes, I can totally see Laughing Dog fighting Mario. Before SSB, could anyone say they could see Jigglypuff fighting Mario, or Popo fighting Bowser? Nope. Those scenarios seemed ridiculous, but part of SSB is being ridiculous. Why do you think Jigglypuff, Mr. Game & Watch and Wario got in with the moves they have? BECAUSE IT'S SILLY.
And yeah, Laughing Dog is an anthropomorphic dog, meaning he'd walk on two legs, unless he was crawling.
Also, LD represents a genre of games as of yet ignored by SSB. We've got RPG, RTS, Platformer, Racing, Stealth, Minigame collection, Action Adventure, Exploration-based platformer, Space Shooter, and Puzzle game characters in SSB, but no FPS characters. The closest we've got is Samus, but that's not the main genre. That's why we need Laughing Dog.
Also, Yea, Laughing Dog has a name, at least as much as Balloon Fighter does, and nobody really seems to complain about his lack of name.
And for that suprise character question, how about Nester?