In many ways, that is how he's used. Even so, he's one of the oldest characters to show up in the Mario series - enemies aside, he's the only character from the original Super Mario Brothers that hasn't appeared in Smash yet. Likewise, including Toad would mean every playable character from SMB2 is now playable, and Toad is the only character who got a costume in
Tekken Tag Tournament 2 that isn't currently playable. He's been in every main series Mario game, probably every spin-off to the series as well, and is the figurehead of an entire species, not unlike Yoshi.
He also fills a niche position in the roster; Toad, assuming he follows his ingame stats, would be light, powerful, high-speed on the ground and capable of lifting far above his weight (no slowdown when carrying heavy objects, ability to carry people a la Donkey Kong) whilst having a very stunted aerial game, and some very 'clumsy' moves like some of Luigi's (his Dash Attack springs to mind).
Toad is the last iconic character left of the Mario series. Mario, Luigi, Peach, Toad and Bowser is pretty much the standard Mario cast, exactly as it has appeared from 1985 through to 2013. I'd be perfectly happy to see a character like Paper Mario, Waluigi or Bowser Jr., but as far as I'm concerned, the shoe-in character for a 5th Mario rep is, and always will be Toad.