When I said 'no hands' I meant 'no dexterous limbs to Grab people or items'. Pikachu may CARRY items in his mouth, but he uses them with his hands (at least in melee, dunno about Brawl yet).
Which items? I'm mentally flipping through them and I don't see Pikachu using his hands much. He swings the beam sword by turning his head (sword in mouth). He uses the Fire Flower with his mouth (though he does use one hand to position it a bit). He fires the super scope by humping it into submission (I guess he's technically using his hands to keep it steady, like the fire flower, but still. I doubt he works the gun the way he does for his own personal reasons).
However, how Pikachu handles things like the cracker launcher is another story. I'd like to see how he does that. Resting it on his back perhaps? If anyone's got screens or video of this, help me out.
Also, Pikachu CAN Punch, just in Smash he doesn't. Pikachu learns Mega Punch, Thunder Punch, and Focus Punch between the various eras of Pokemon. Pikachu also uses his hands for grabs.
This is true, but since he
doesn't punch in Smash (as far as I know, he still doesn't in Brawl. But I suppose that's still open to change), I don't see how that's relevant. The point is just that Pikachu, though he does have hands and is technically capable of using them, does not use them conventionally. In smash, he does not punch, he does not throw (he grabs, yes), and he does not wield a weapon with his hands. He essentially just grabs people and positions weaponry.
Oh, and he waves at the camera. Which is awfully cute.
Anyway, because of this, many other characters who don't have "hands" at all, can employ the tactics Pikachu uses. Pokemon like ratatta, Jolteon, etc. can use their mouths (. . . muzzles?) the way Pikachu does and resort to head-butting and tackling the way Pikachu does. The only wrinkle to iron out would really be grabbing people, which could be solved through creative means of pinning people to the ground, I'm sure.
Ivysaur is the oddity in that it has no hands, but does have its vines for dexterous moves.
Lucky Ivysaur gets more options.
And Mewtwo has hands but doesn't use them to show off his cool.
I don't blame him. If I had that much cool, I wouldn't soil my hands on the likes of Mario or his friends either. Who knows the last time he even washed what he's wearing?
Final thought: The only area I can truly see a lack of hands being a problem is in the event that a hammer is present and ready to be used. Thinking back on it, I'm sure Pikachu probably uses his hands for this one (I'd check, but I'm far too lazy and far too impatient to post this) so I don't rightly know how ratatta might go about picking that up and using it. But I know it would be hilarious to witness, regardless.