Time to give my totally professional opinion...
First of all: This looks REALLY awesome. The graphics are amazing, for a Flash game. No ****ty animation with sprites, this is the real deal. Props to that. The animations are fluid, everything looks very pretty and does not disappoint at all. It doesn't leave you with "I could be playing 64 if I wanted crap graphics" but with "wow, this is very well made". Which says a lot, seeing how it's a fangame..
The game worked very fluidly, even with the loss of aerials, tilts and smashes, I didn't find it all that bothersome for certain characters. It was a bother when playing as DK, but Bowser and Sonic worked very nicely with this system. Gameplay wise, I love how you made it a bit more like Melee, but it still felt like Brawl, somehow. Directional air-dodging, more hitstun, it reminded me a lot of Melee, yet I was under the impression it was a Brawl fangame... Very nice.
Characters and how they play... Sonic is way too good. XD Nah, not really, so far it seems 'balanced' enough. I realize it's a very early demo and that I shouldn't be talking about stuff like this, so I won't... Yet. I will say that this is the first time I actually enjoyed playing as Sonic. Good stuff.
Stages looked pretty, so far. World 1-4 is a very wide-spread idea and I think you did justice to it. You might want to raise the roof a little on that, though, so that you can still properly use aerials. Metal Harbor is my favorite stage so far. A simple, yet untouched layout with a few gimmicks and awesome music.
The only thing that can ruin this would be crappy character choices. Try to keep it strictly Nintendo based, it's a Smash Bros. fangame, after all. Keep 3rd parties limited to their main character, Snake for Metal Gear and Sonic for... Well, Sonic. No fancharacters, no manga/anime characters, just keep it purely game-based. For newcomers, stick to the highly requested characters for Brawl but weren't included... Ridley, Krystal, Mega Man come to mind. Also, give us back Mewtwo. I don't care what you do about Roy/Pichu/Dr. Mario/Young Link, but I would only advise Roy, as he has a much easier potential for a new moveset: just make him the middle man to Ike and Marth.
Sakurai's character poll for Brawl is here:
http://smashboards.com/showthread.php?t=71872 I recommend just looking at the ones that were voted for multiple times.
Don't forget that the characters, above all, need to recognizable for almost anyone. No obscure stuff from a GBA game somewhere. People need to see him/her and say: "Hey, I know that guy! Awesome!" or "Haven't I heard of this character before..?" at least.
For third-party characters, look for FRANCHISES, not characters. Final Fantasy is a good franchise, but would that make Cloud Strife a good character choice? No, probably not. Why? Because, from the main games, ignoring the over 9000 remakes, he was only in one game. Plus, his only appearance on a Nintendo console was for the GBA Kingdom Hearts game, which isn't really all that known... A better choice for this specific franchise would be the Black Mage, who was featured multiple times on multiple Nintendo game consoles. I'm not saying "OMFG BM SHUD B IN DIS GAEM", just giving an example.
Stage ideas, 64 stages... Mushroom Kingdom, Saffron City, Peach's Castle and Zebes. Don't give us stages that were already featured in Brawl, unless a good change has been added, as what you did with Battlefield. Final Destination is a staple, of course, but don't forget to fix the ledges. For other stages, just check Stage Discussion.
Overall, I'm looking forward to this game. Just release demo's frequently so you can hold on to your fanbase.