The rumors for one DLC character being a Square-Enix character, but knowing for sure who it is makes things interesting to say the least.
Sora would probably be the character that'd make the most people happy. Dragon Quest has the most prestige behind it, though I don't think any of their protagonists are quite as popular as Cloud is for Final Fantasy, so taking an iconic side Character/Monster isn't too far fetched. Though Erdrick is still notable enough in his own right.
Then you got Final Fantasy in general. I doubt we'll get much content from them, but there's still the slight chance of another FF protagonist like Terra. Or another popular FF7 character like Tifa or Sephiroth. Crono, who's had a fairly strong following and would have less hassle than Sora I imagine but honestly has less going for him than either FF and DQ, but he'd be one of the cooler choices.
For their western IPs, Lara Croft would the most obvious, she's probably the biggest icon of said Western-owned SE characters. And even before some of the crazier 3rd party characters, she received some support, just less so than Crash for example. But given how notable she is, it'd make a lot of sense. Mario vs Sonic/Mega Man/Pac-Man, Link vs Cloud are all dream matches. Samus vs Lara is another one of those.
Hitman's popular, but I doubt Agent 47 would be the first choice, but who knows. Adam Jensen would be cool. Any ************ with shades built into his cyborg face has to be.
Geno's a weird case because it doesn't seem like either company wants to do something substantial with him. Despite the fact that him being connected to both companies.
I'd say the choices boil down to:
Tifa or Sephiroth
I'd say it can't be any FF rep other than those two (except maybe Moogle or Chocobo), because they've made their bed with Final Fantasy in Smash being specifically FF7 and not just Final Fantasy in general.
Sephiroth has the caveat that they must accommodate his giant sword, it's certainly doable, but Tifa would be way easier, not that difficulty would stop Sakurai.
Lara Croft
Lara Croft is a house-hold name, almost everyone with any kind of video game knowledge at all has at least heard of her.
Sora
Kingdom Hearts is an incredibly popular series, there are legal arguments to be made concerning Disney, but who knows how that might play out.
A Dragon Quest representative (either Slime, Erdrick or a popular party member)
Dragon Quest has a prestige like almost no other, even if the West couldn't really care less about it. Also, it'd get the Toriyama artstyle into the game...
Crono
Chrono Trigger is generally considered one of the best Video Games ever made, nuff said. XD
Geno
Geno is the darling of the hardcore fanbase, requested for at least a decade and a half, if not longer. Unfortunately, hardcore appeal is pretty much all he has going for him at this point.