The main point I'd bring up in favor of Toad's inclusion has probably been said before, but I'd just like to re-iterate it:
Toad is one of the only truly iconic Nintendo characters left to be added. The way that I measure how iconic a character is by how instantly recognizable they are: nearly every gamer, and more importantly, a significant amount of nongamers will definitely recognize Toad - a trait that Ridley, King K. Rool, Palutena and Little Mac do not share. Toad has been a very important character throughout the entire Mario series and is most definitely a gaming cultural icon. How could Toad not be considered a Nintendo all-star?
JUST A DISCLAIMER: I do not intend to slag Ridley, K. Rool, Palutena and Mac - they are simply examples that I use because they are the most requested characters as of right now. They are often titled as 'the most deserving newcomers', so I am simply trying to prove that they are not, in fact, the 'most deserving' - as that distinction lies with Toad. But I most certainly do not think these characters are bad in any way. In fact, I am an avid supporter of Palutena and Little Mac.