Well, besides Tanuit, that recent article more or less confirms Erdrick for me. Or soft-confirms it.
That said, I like the idea of changing armors. His strongest armor could reduce damage from stage hazards a little and once in a while give him HP... on a successful attack. Perhaps as he gets better armor, he also has more lag in his attacks to justify the healing.
For Steve, I do think he still has the strongest chance for a Microsoft character. After that, then I'd say Master Chief. Banjo & Kazooie next, though we're talking a very small difference in chances between them(B&K) and the Chief. I'm not sure if Fulgore or Battletoads should be next in the chance list, though. Fulgore is the mascot of KI, but that's also an active series fighting against other Fighting Games, so it might keep him out. Normally that wouldn't matter, but Microsoft is a 1st party competitor too, so things that might hurt their sales can be taken into account. In this case, with Fulgore in Smash, this could hurt Killer Instinct's sales since they'd rather latch onto a bigger fighting game series, the the mascot in the other game means they don't need to buy KI to experience his glory. Of course, it's not always that simple, but that can be enough of a reason to find it too risky. Maybe with this in mind, Battletoads are probably more likely than Fulgore. Speaking of, are there any 1st party Nintendo beat 'em ups for Battletoads to essentially compete with?