Sonic's main claim to fame was being the mascot that tried to bring Nintendo down.
FFVII would not have jumped ship if Nintendo didn't back out of their deal with Sony for the CD add-on.
When you're covering your history you can't just ignore the bad parts. Also Cloud's popularity trumps any of that to be honest.
I wasn't "ignoring the bad parts"
The cd add on wouldn't have worked. Nintendo saw how well add on's were treating Sega. And when they tried the Disk Drive it still failed, it wasn't because they didn't use the one Sony had worked on with them, it's because any add on to any system was going to be met with poor reception. People didn't want to have to upgrade the systems because it wasn't really a thing at that pointand any new step is always met with resistance.
The reason the PlayStation worked when it went it's own way was for two reasons: Sega was losing grounds as the Nintendo rival and Sony was able to step in to snag that position, and because it was it's own system, not an upgrade to a system audience already bought. Buying something completely new wasn't seen as so bothersome because it was expected that a new product wouldn't be free.
Besides, if that was "the reason" FF left Nintendo, then they could have come back after the 64. They didn't come back when the Gamecube was around and had very competitive hardware for playing games.
Regardless of why they left, they still left and didn't come back until just recently (or rather will in the near future) and Cloud was the figure head it all happened under.
I'm not boycotting the character, and obviously my opinion matters only so much as he is in the game regardless, I'm only stating that when he was added, he didn't deserve it.
As for Sonic, he did deserve it. I'm not even a Sonic fan, but you can;t deny he is a huge part of Nintendo history, his rivalry with Mario was built into his very design (developers decided he should be blue to counter act Mario's red and that he should have plenty of points to offset the very rounded shapes of mario's design)
But not only was he a Rival, when Sega dropped out of the console race the Sonic games immediately came over to Nintendo. After the mainline games started coming to Nintendo, they started doing crossover games. Sonic had transitioned from a bitter rival to Mario to a friendly rivalry (not unlike how all the antagonists in Sonic games eventually become good guys like Knuckles and Shadow and such)
So, Sonic by his inception was built into Nintendo History and then eventually earned a right to be celebrated for in in Nintendo games.
Cloud didn't earn that when he was included and only now is Square fulfilling on it. If you like him and like playing as him in Smash, that is fine, but him being in a game that is meant to be a celebration of all things Nintendo was completely unfounded and is only now being rectified years later.