As for the whole story thing, I don't know how the whole trophy thing works, cause we see Pit in Sky World cheering on both fighters, seeing that he's a spectator, and Palutena then appears, and whatnot, so I'm a bit confused on the whole thing, because they don't seem like trophies. Then we have Donkey Kong perusing the Hammer Bros. who stole his pile of bananas, and I have never known trophies to eat bananas.
As for Midna, it would be a nice for her to true form to at least have a cameo appearance in Subspace Emissary mode, but having her true form embedded into her original character like the Sheik/Zelda idea would be nice to have, to me. They'd be like opposites though, imp (main character) form would be nimble and technical like Sheik, and true form would be slow and powerful.
I'm invisioning true form's movement mimicing Final Fantasy X's Shiva. x: