They have the Okay from Square-Enix to use Geno and Mallow for Spirits. They didn't seem to have the okay to use any of the soundtrack otherwise we'd probably have 'Beware the Forest's Mushrooms' as a song at the very least. Negotiating the rights to a playable character are very different and, honestly, they would probably rather have quite a few Square-Enix characters over Geno since he's rather Niche while they could get a lot more sales from including a Dragon Quest character, another Final Fantasy character, 2B, Lara Croft, or anyone that is a bigger, more well-known name.
Super Mario RPG is my all-time favorite Mario game, and in the Top 5 for my favorite games ever released, and I love Geno, but he is not a name that would warrant the hassle most likely...now if Nintendo wanted to outright buy the rights to all original SMRPG content, I could see them doing that someday.
Ness and Captain Falcon are either completely or partially owned by Nintendo, so there's a lot less hassle in including them. They are also the main characters for the, at the time of their inclusion, the most recent games in their series (and all games for Capt. Falcon), Geno isn't the main character of the Super Mario series or even Super Mario RPG, he was a side character that, lets be honest, was replaced by Peach and/or Bowser the moment they joined the party for most players of Super Mario RPG. Ness & Capt. Falcon also weren't old, currently unused characters at the time of their inclusion like Geno currently is.
Geno likely wouldn't be considered for a Retro Rep for very long solely due to being a Square-Enix owned character and, if they were going to go through the hassle of adding another SE character, they would likely try for someone else. Terra Branford, from Final Fantasy VI, for example, is about as old as Geno and a lot more well known then he is. There are also older retro characters from Nintendo that Sakurai could pick if he wanted to.
Like I said, I love Geno, but the cards are definitely stacked against him at the moment, sadly.