"Guests Miis only" is I think a necessary evil because of logistics. Not everyone has a 3DS, and we can't make people quit the game to create a custom Mii on Mii Maker on each setup. Guests Miis are available everywhere, all the time. (Plus the fact that players can't seriously train against every possible variation of size and weight.)
However, I think a competitive ruleset should alter game mechanics only in case of extreme necessity. (Example: how to handle sudden death.) Thus, Miis should have access to all their moves in a "customs off" environment (which is an ingame setting and not an external rule), because it is how the game works, and no particular move was proven to be ban-worthy or uncompetitive.
Those who are worried by the "fairness" of being able to "counterpick a moveset", you can say that players can only choose 1 moveset per type of Mii at the beginning of each set. I think it's a reasonable compromise for everyone. But restricting them to 1111 is completely as arbitrary as limiting them to 2222, 3333, 2131 or 3312.
Unfortunately for Palutena, she requires the custom setting to be turned on. I sympathize with her players, but I stay with the same logic (because consistency is key) : we shouldn't alter ingame mechanics. Turning customs on but allowing only Palutena's, requires to justify banning every single custom of every character, except for her. The fact that her moves are "unlocked by default" is a pretty weak argument for a massive universal ban like that. She is not special in regard to the game, contrary to Miis.