I agree that Toon Link looks much better on paper than he actually is. Here are a few reasons why I feel he will never amount to anything more than mid tier (which isn't bad at all).
#1) He does not have good approach options. True he is quick enough on the ground, but his move from dash are not good options for approaching. Grabbing is way too risky; and Dash Attack, Usmash, and Up-B are also easily punished. If you attempt to approach from the air, you run across Toon Link's major downfall - he is too floaty for the aerial attacks he has. Uair and Dair are not viable options for approach; and Fair, Bair, and Nair all can be punished pretty easily if shielded since Toon Link is left vulnerable for a significant time after each of these attacks. In other words, he has a very poor air-to-ground game, and he cannot really space his attacks enough to use the Marth/DK pressure tactics.
#2) He must play defensively. This is drawn directly from #1. Since he cannot really approach very well, he is forced to play a defensive game. Maybe someone is thinking that he could approaching using his projectiles as a lead in, but honestly, they really don't produce much of an opening. Arrows have lag afterwards no matter what, and the boomerang is somewhat laggy too - not to mention that both of these are shielded with relative ease. Bombs can be a decent approach option, but the explosion is so large that it often ends up stunning Toon Link as well as the opponent. If Toon Link is not damaged by the bomb, he is probably not close enough to follow up with anything.
#3) His projectile defensive options are good, but not that good. One may initially think that relying on a defensive game is not such a bad thing, but Toon Link only has good defense as long as the opponent is kept at projectile range. Even then, it's not THAT hard for many characters to weave through the bombs, boomerang, and arrows. Honestly, SH double arrows are NOT that good - just shield them or jump over them. Boomerang is good for preventing aerial approaches, but you only get to use one at a time. Bombs are more versatile, but they must be pulled out before being thrown. No matter how you mix up the projectiles, a good player will get through them without taking too much damage. I'm not saying that Toon Link has a poor projectile game at all, but it's not as great as some people seem to think.
#4) His up close defensive options are poor. Once the opponent does get through the projectile range, Toon Link has very poor defensive options. If the opponent is on the ground, Dsmash will provide a decent defense, but an opponent that approaches from the air is difficult to stop. None of his grounded attacks have the sweeping coverage, range, and speed to stop aerial approaches, and they are also risky from a lag perspective. His Nair does not provide the coverage above him necessary for defense, and his Uair/Dair are obviously poor choices for defense. His retreating Fair would be a decent choice if it were not so slow. Luckily, he does have his Bair, but even this attack sweeps upward (like the Fair) rather than the preferred defensive downward swing. The Zair may provide some help in defense since it has good range and zero lag, but it also provide no sweeping hitbox for defensive purposes.
So, basically, this is how I perceive Toon Link. He cannot approach, so he must play defensively. His defense is good at a certain range (projectiles), but once the opponent gets past that range, the opponent will generally have the upper hand on Toon Link. This doesn't even take into account characters that actually have better projectile games than Toon Link.
In certain matchups, he will certainly do very well (against large characters for instance since they will fall victim to his good projectiles). Even some characters will have up close games that are worse than his, and he will most often dominate these characters as well. But there are also a lot of characters who can get through his projectiles without too much difficulty and completely dominate him once they get inside the projectile range.
