I don't know if I would have gone for Green Missile or Peach Bomb as move ideas, given, but I think there was more to pull from them as far as potential movesets than, say, a character who never had a single playable appearance at the time beyond sports games and Mario Kart. The fact that Toad is Peach's Neutral Special, the move that gets spread to Kirby when he copies their signature abilities, hints to me further than Sakurai may have shared the same believe that making a moveset for Toad would have had to warrant much more creativity than the main four in Mario. For a series as rife with potential for characters as Mario, I could at least comprehend why he'd assign Toad to such an "unplayable" position.
Peach barely had
anything. Just Super Mario Bros. 2 (same as Toad), and Super Mario RPG, which had very little that would be viable for Smash.
Luigi? This was the time that he was just "Mario #2", with the sole exception of having higher jumps and lower traction in Super Mario Bros. 2 and Super Mario Bros.: The Lost Levels. Luigi had nothing exclusive to himself otherwise, having the same exact abilities as Mario in every game he was in. And then we have to consider that there were games that Mario was in that Luigi
wasn't.
And it seems you have forgotten Wario's Woods existed, which had Toad as the main character, and it gave him the ability to carry enemies and bombs over his head and stack them, even being able to lift
entire stacks (essentially where the "superhuman strength" aspect of Toad came from), chuck them, kick them, and run up walls. So it's not like Toad had nothing.
Toad really has no other stiff competition other than the possibility of Dixie Kong and K. Rool, but we're probably just going to get only one of them unless we get Diddy/Dixie like Sakurai intended in Brawl.
Toad's exclusion from Smash has nothing to do with some perceived notion that he has nothing to work with (which is a bs excuse in itself given he made an entire moveset for Captain Falcon when all he did was
drive a car). In Melee, BOTH Bowser and Peach were added. Sakurai didn't want to include even
Wario along with them, and he was in the Top 5 in requests on his poll, and higher than Toad, who was the 4th most requested Mario character. This shows me that adding anyone else would have been overpopulating the franchise in his mind. Why Dr. Mario was added later in development with that knowledge, I don't know. But being an easy clone idea probably outweighed the overpopulation concept.
In Brawl, we got Wario and Diddy Kong, two characters within the Mario universe that happen to be a part of other franchises. Notably no main Mario character was considered, and Dr. Mario was planned as a low-priority character.
Though I have to admit, representing the mushrooms themselves? Surprisingly misrepresented in Smash Bros. beyond being an item, now that I think of it. That's a niche I can live with. Niche being the keyword, however, as it still doesn't come across to me as something about the Mario universe that needs to be represented in playable form when the items do that perfectly well.
I'm not talking about power-up mushrooms.
I'm talking giant masses of fungus used as
weapons and obstacles.
Like for example, have Toad spawn a mushroom from the ground in front of him that flings an opponent skyward as an Up Smash. Or have Toad create a large mushroom that serves as a temporary wall for a Special Move.
On top of that, you have spores themselves as attacking method, such as Super Smash Bros. Crusade giving Toad an attack where he uses a burst of spores that hits both sides of him.
Throw in something like the Power Squat Jump from SMB2, a stacking move ala Wario's Woods (and possibly some multi-colored bombs of varying strength and effect), a stunning headlamp from his stint as the Toad Brigade Captain in the Galaxy games (perhaps have it work like the flashing light in Luigi's Mansion Dark Moon), the Toad Brigade itself for a FS, make him a pint-sized powerhouse with a fast dash and low jumps, and an ability to temporarily run up walls, etc., and you have a recipe for a unique moveset that fits Toad and no one else.