01. Mario
As the Ryu of Smash Bros., Mario doesn't have to change much. He can get the Hammer and the Firehand from Mario & Luigi: Superstar Saga as A-moves, along with a Ground Pound aerial. He can ditch FLUDD, though. Cappy should only appear as part of a taunt or victory animation. He can get a number of outfits from Super Mario Odyssey as alternate costumes, along with a full-fledged Dr. Mario alt.
02. Luigi
Nintendo has established that the Luigi's Mansion franchise is a going concern, so Luigi's special moves should be revamped to revolve around the Poltergust 3000. He can be a zoning/projectile character capable of sucking up foes, shooting ghosts, using the Poltergust as a flamethrower, and so on. He can also get the Thunderhand from Superstar Saga. His alternate costume can be Mr. L from Paper Mario: The Thousand-Year Door.
03. Peach
Peach's Smash Bros. moveset doesn't really do her justice. She can keep the turnips and parasol, but she should also get special abilities from Super Mario RPG and Super Princess Peach. She can have the cat suit from Super Mario 3D World and the nurse uniform from the Dr. Mario manual as alternate costumes. For her full alt, she can become Princess Daisy, with her attacks now getting a flower motif.
04. Bowser
Smash 4 re-worked Bowser pretty nicely, though I think his neutral special could be turned into a fireball projectile. Other than that, I think he's pretty much set. Bowser has various fan-favorite choices for alternate costumes, such as the hipster outfit from the Nintendo 3DS add, the groom suit from Odyssey, and Meowser from Super Mario 3D World. Dry Bowser would certainly make an impression as well.
05. Yoshi & Baby
Yoshi now carries Baby Mario, Luigi, Peach, or Bowser on his back. The baby can be selected at the character select screen. Yoshi's baby changes his neutral special, neutral air, and forward smash. Beyond this major change, I think Yoshi's pretty much set. He can get Birdo as an alternate costume, which wouldn't carry a baby, and have some unique moves of her own.
06. Wario
I think Wario in Smash should primarily represent Wario Land, so his yellow-and-purple outfit should be the default. His moveset should be revised to include more Wario Land abilities, and we should get a Wario Land stage as well (with Captain Syrup as a stage hazard). He can still keep the biker outfit as an alternate costume. I feel like they took Wario too far into "gross" territory with his moveset, and should focus on making him meaner and greedier instead.
07. Donkey Kong
Donkey Kong needs a stronger moveset that borrows more directly from Donkey Kong Country with rolling, momentum, and advancing grabs incorporated. He should also get the coconut gun from Donkey Kong 64 as a limited projectile. And he should definitely have a victory animation where he runs away with Pauline in tow. I'm not sure what his alternate costume could be, but Funky Kong or Dread Kong are definite possibilities.
08. Diddy & Dixie Kong
Diddy and Dixie working together, like the Ice Climbers. This idea used to be more popular than it is now, but I still think it's great, and very much in the spirit of Donkey Kong Country. Diddy's moveset is partially unchanged, but now he gets a lift from Dixie for his up-special. Their victory animation obviously has them playing the electric guitar and saxophone, respectively. Their alternate costumes could be... Lanky and Tiny Kong!?
09. Link
Link appears with his Breath of the Wild incarnation as the default. His moveset largely remains intact, with aesthetic changes. He could get the paraglider as an up-special, though. Link can get various BOTW outfits as alternate costumes, including his classic getup. He could also become a more agile, less stiff fighter on the ground. The idea would be to make a Link model that can be updated easily for later entries.
10. Zelda
Zelda returns in her Breath of the Wild incarnation, and with a fully revamped moveset. She now uses a rapier, a bow with Light Arrows, and Shiekah Slab/magic rune abilities to fight. She can get the BOTW winter oufit as an alternate costume, along with her Hyrule Warriors dress and Twilight Princess cloak. The basic concept for Zelda's character can be updated for later entries in the series quite easily.
11. Ganon
Ganon (not Ganondorf) finally gets the moveset he deserves. He gets a new default look inspired by Breath of the Wild, with either dual blades or a great sword, combined with dark magic. Shadowbeast Ganon can easily be his Final Smash. He can also get Hyrule Warriors, Twilight Princess, Wind Waker, and/or Ocarina of Time outfits as alternate costumes, without modifying his moveset.
12. Impa
If the Zelda series has a fourth pillar, it's Impa. She would join the fray with an original look that's basically the young version of her Breath of the Wild incarnation. She would play like a Shiek/ZSS hybrid, using ninja arts and shadow magic combined with overwhelming speed. She can get her Hyrule Warriors look as an alternate costume (minus the weapon), along with her outfits from Skyward Sword and Ocarina of Time.
13. Pikachu
As the mascot of the Pokemon franchise, Pikachu's not going away anytime soon. His moveset is fairly solid but could use more inspiration from the anime; Volt Tackle can become a regular attack, and Iron Tail could be incorporated. His new Final Smash could easily be a Z-Move. Obviously Pikachu has tons of choices for alternate costumes, chief among them his Luchador outfit from Pokken Tournament, and his Detective Pikachu alter ego.
14. Meowth
I know some people will never accept Jigglypuff being cut, but I think Meowth is an infinitely superior choice for Pikachu's foil. The anime keeps him relevant, and he's ingrained in the public consciousness as a humorous antagonist. As the line between the Pokemon anime and games becomes more blurred, Meowth could even use Team Rocket weaponry as part of his moveset, including a giant mecha Final Smash.
15. Mewtwo
Mewtwo is an enduring fan favorite given new relevance by his dual Mega Evolutions and his Pokken Tournament appearance as Shadow Mewtwo. His moveset is well-implemented, but could use flashier attacks to give players a sense of his monstrous power. Shadow Mewtwo could definitely be an alternate costume, as could his famous power-restraining armor from the Pokemon movie.
16. Lucario
Lucario is one of the few Pokemon from later generations that has attained lasting popularity, and his Steel/Fighting typing makes him ideal for Smash. I think they could lean harder into martial arts/Shaolin monk side of his concept in order to give his crazy acrobatic moves and Aura Blasts for days. His Final Smash can continue to be his Mega Evolution. I can't think of any alternate costumes, though.
17. Kirby
Kirby's power-copying moveset should be revamped into something slightly less fun but infinitely more useful. When he swallows an enemy, Kirby should be able to choose the power set he gets. These should be generic powers taken from the Kirby series, instead of specific powers inspired by each Smash Bros. character. These should also be more complete power-ups, instead of just one unique neutral special.
18. Meta Knight
I don't have a lot to say about Meta Knight, I think he's more or less perfect conceptually already. Balancing issues aside, he fits into Smash Bros. just fine He could definitely get the armor suits of other Kirby knights as alternate costumes, along with some Kirby villain-inspired outfits. He could even get an "unmasked" costume, though that may prove controversial among fans. But whatever.
19. King Dedede
King Dedede is such a great character, but needs a better moveset. His Brawl moveset was really weird considering Sakurai oversaw it personally, since things like the mecha-hammer don't really fit Dedede's personality at all. They should make him a heavy, floaty character with projectile options regardless. I can't think of any alternate costume ideas, though I'm sure Swole Dedede from Star Allies would be fun.
20. Marth
Marth is the iconic first Lord of Fire Emblem and has remained relevant, plus he is Smash's number one FE representative. I think his moveset is mostly okay, though it could be more stylish and dramatic, especially when it comes to the Shield Breaker and Dancing Blade. Marth's actually had a number of different outfits over the years, though of course Lucina would also be an alternate costume.
21. Ike
Ike is the protagonist of the Tellius series of games plus a reliable fan favorite, and he brings a "heavy swordsman" fighting style that is fairly unique in Smash Bros. He could still have a more interesting moveset, though. Both the Path of Radiant and Radiant Dawn versions of Ike could be represented, but his super-buff Radiant Dawn self should be the default. Not sure who could work as an alternate costume, though.
22. Anna
Anna is the closest thing the Fire Emblem series has to a mascot, and is kind of a joke character (in a good way). She represents the newer games fairly well. As a merchant, Anna can use all sorts of weapons for single attacks, such as lances, axes, crossbows, and even magic tomes, giving her a potentially fun and explosive moveset. There are various Fire Emblem girls she could cosplay as for her alternate costumes.
23. Fox
Even though the moveset of the StarFox characters in Smash is pretty well-defined at this point, there is no reason to re-think them, especially if they end up with something more accurate to the source material. Fox can still be agile and deadly, but use bombs and futuristic firearms for special moves. He should get his StarFox Zero outfit as the default, with alternate costumes for Assault, Dinosaur Planet, and/or James McCloud.
24. Wolf
Wolf is a recurring antagonist and the closest thing Fox has to a rival, so I think he deserves to be in StarFox just a little more than Falco. His badass StarFox Zero appearance should be the default, with an alternate Assault costume. There is no reason why he needs to be a Fox clone, as he can use heavier artillery, explosives, and even high-tech melee weaponry to complement his more aggressive fighting style.
25. Samus
Samus returns... and Zero Suit Samus is nowhere to be seen. Samus still sheds her armor during her victory animations, so fans remain pleased. Her moveset is generally fine, though it could stand to expand her arsenal with functions from the Prime series, and give her greater mobility on the ground, perhaps making better use of the Morph Ball. Her Power and Fusion suits should definitely be alternate costumes.
26. Ridley
Memes aside, Ridley can totally be implemented as a playable character. He'd be huge and gangly, but his wings and tail would not be part of his hitbox. He would be a heavy and powerful character with great aerial control and limited ground options. And honestly, he's the only Metroid character (aside from Samus) who deserves inclusion. Ridley's alternate costume would definitely be Meta Ridley.
27. Ness
Ness is just fine as the sole representative of the MOTHER series in Smash, though he could get a Lucas alternate costume anyway. I think his moveset is cool in concept, but needs more unique visual effects to do justice to EarthBound. He also needs a more useful neutral special, and PSI Rockin as his Final Smash. Throw in a Kumatora Assist Trophy for good measure and fans will be pleased.
28. Captain Falcon
Even though I generally don't like it when Smash makes up ridiculous movesets for characters which have nothing to do with the source material, Captain Falcon is just too iconic to change. His Smash Bros version is significantly more popular than F-Zero itself. Make him the real goof of the series with lots of flashy, over-the-top attacks, and definitely give him a helmet-less outfit, plus a Blood Falcon costume.
29. Olimar
Olimar got kind of screwed in Smash 4, though I understand what they were trying to do. I think his Pikmin moveset should be re-worked into something that is simultaneously manageable and actually useful, instead of trying to trim down the original version. Rock Pikmin also need to be included in his moveset somehow. For alternate costumes either Louie or Alph work, or maybe even both.
30. Villager
The Villager is more or less perfect as they are in my opinion, with a wonderfully cheeky moveset that is faithful to the style and tone of Animal Crossing. If anything, adding more customization options for the Villager's appearance might be nice. As for a full-fledged alternate costume, they could either go with Isabelle or Tom Nook, though in the case of the latter they would have to change the Final Smash as well.
31. Inkling
The Inklings are the first confirmed newcomers for Smash 5, and there is no one more deserving of inclusion. They'll probably be zoning characters with lots of projectile options. Covering the stage in ink will give them faster movement on the ground, but the ink probably disappears after some time. I hope they get Octoling versions as alternate costumes, since Splatoon 2's DLC will let us play as them at last.
32. Pit
Pit is Sakurai's baby, and will certainly make it into the next Smash game. But I think that making Palutena playable was a mistake, and Dark Pit can be relegated to alternate costume status. Pit's moveset could be updated further if they felt like it, as Kid Icarus: Uprising had a massive arsenal of weapons and abilities. If another Kid Icarus game is in the works, then that may eventually merit a second Kid Icarus character.
33. Mii Brawler / Swordfighter / Gunner / Mage
Miis are going to keep being a thing on the Nintendo Switch, not to mention the 3DS. Plus Nintendo clearly loves their create-a-fighter concept, and it suits the cartoon nature of Smash pretty well. I would add a fourth Mii Mage fighting class in order to make up for the loss of custom moves. And I would obviously add tons more accessories, weapons, and outfits for all combat classes, plus a Miitopia stage.
34. Shulk
Nintendo is clearly putting a lot of faith in Xenoblade Chronicles, and Shulk is still the poster boy of that series. Elma isn't nearly as recognizable and Rex is too new, plus the protagonist of the first game usually ends up being the "default" representative. Shulk has a wealth of alternate outfits to choose from if we go over the source material, plus a number of party members who could swoop down to help in battle.
35. Mr. Game & Watch
Mr. Game & Watch is a puzzling and charming character who was basically created for Smash and, if Brawl is to be believed, is deeply involved in the series lore. The franchise wouldn't be the same without him. Smash 4 did a good job making his movements feel a bit more "retro", but I think they should dial back on the random elements of his moveset and make him more strategic. No idea who his alternate costume could be, though.
36. R.O.B.
As the representative of the toy that saved Nintendo (and certainly did the video game industry a solid), R.O.B. fully deserves to be in Smash. His moveset is a little boring, though. I know there isn't a lot to go on if you look at the source material, but maybe he could use other obscure Nintendo paraphernalia, such as the Virtual Boy or Ultra Hand? As the blast-from-the-past character, I think it could work really well.
37. Duck Hunt
For me, Duck Hunt was the most charming newcomer in Smash 4, and the representative of a game that just about everyone is familiar with. His moveset could be expanded to include characters and elements from other early Nintendo shooting/arcade games, of which there are many. It would be a nice way to pay homage to the company's arcade days. I'm not sure of alternate costume ideas, but I'm sure there's something that would fit.
38. Parabo & Satebo
Every Smash game needs a curveball newcomer, preferably a retro one. It could be anyone, but I would love it if it were the Nintendo Satellaview mascots. Players would control Parabo and launch Satebo around for attacks, similar to Rosalina and Luma. Obviously their chances of being included are realistically very low, but this space is a placeholder for whatever surprise the team decides to throw our way.
39. Bayonetta
With how Nintendo is financing the Bayonetta series it seems that they're treating it practically like a second-party franchise. Despite the mature content, Bayonetta's cheeky personality and over-the-top fighting style suit Smash very well. With any luck they'll re-balance her this time, though. She'll probably be sporting whatever look she gets for Bayonetta 3 as the default, and have a Jeanne alternate costume if we're lucky.
40. Sonic
Sonic being in Smash is a permanent dream come true for many, and no other video game mascot has such a historic rivalry with Mario. I'm sure SEGA will be more than happy to keep him in the series. Hopefully this time around they'll be a bit more lenient about how Sonic is represented, and give him a more interesting moveset. A Metal Sonic alternate costume should also be a given by now.
41. Rayman
Ubisoft is dying to put Rayman in Smash. The fact that he got a trophy in Smash 4 and that Mario + Rabbids: Kingdom Battle exists practically confirm it for me. There's always the possibility that we'll get the Rabbids instead, which honestly I wouldn't even mind at this point, but I actually think Nintendo will go for Rayman. He's got tons of moveset potential, obviously, and would generate considerable hype.