The problem with balancing Sheik is there doesn't seem to really be a good way to do it. Her damage output is pitiful without her strings, and killing before 150%+ is a miracle. If they take away her safety, she has nothing. Fast but weak is her whole schtick. She has to play really really well, or else any lead she gets can get torn away from her because of the huge kill% differences and damage output. Assuming there's no gimps, she has to do pretty much double the damage of her opponent to win, with moves that do less damage.
Lag on fair will break her most reliable way to rack up damage and make spacing very difficult due to lacking heavily in the range department on pretty much everything but bair. Her speed is the only reason she can get away with her short reach. A better solution would be to give it a tight autocancel window to limit where she can fair. Needles could stand with a simple horizontal range decrease, as that won't **** up how she works. But bouncing fish basically IS Sheik. Tampering with it too much will ruin her. It ruins her recovery, it ruins her (lack of) kill power, it ruins her edge guarding, and it ruins her combos. And it's not like she can just spam it and only it all day. She needs the rest of her moves to ever land it, except maybe for edge guarding, where the unique wall bounce aspect brings a whole new dimension to it. The only thing I can think of to fairly nerf it is make it not bounce on shield, so she can be punished for throwing it out stupidly.
Don't get me wrong, Sheik is ridiculously good, and if there was a good way to bring her down a bit, I'd say she really needs it. The problem is I just don't see how. She doesn't have any standout bull**** that can easily be tweaked. The way everything she has works together is what makes her good. They'd basically have to either make a completely new character by balancing the damage and kill power with her safety by changing how almost every move works, or make her absolute garbage by making her unsafe. And with how integral bouncing fish is to everything she does, tampering with it will completely change every aspect of how she works. Lowering it's knockback in the first patch was a reasonable thing, because that didn't ruin how she worked, but doing that again will make killing 10x the nightmare it already is.
Considering I play her, I'm fine with the minimal changes. It means I don't have to drop her. Yet. I fully expect her to get nerfed eventually, and I expect her to drop to low tier when it happens. She's not like Diddy with obvious things that can be toned down and still have him work. I see Diddy as easily contending in the top tiers still, especially with those hitboxes. He's just not bull**** anymore.
tl;dr
Sheik needs nerfs, but I don't see a good way to do it.
On the bright side, Sheik is a million times more interesting to watch or fight than Diddy.