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Apart from Master Chief, almost every other well-known character in an Xbox smash game would be better known for their entries on a Nintendo platform. In my opinion, it would make a lot more sense for Microsoft to just collect royalties from Nintendo and offer the following additions to the next Nintendo smash game or as DLC for the current Smash:

- Master Chief
- Joanna Dark
- Jet Force Gemini twins
- Banjo and Kazooie
- Conker

These characters would actually fit really well into a Nintendo Smash game. It would help Nintendo also because I really think that they are scraping the bottom of the barrel now in terms of finding new characters to add to future Smash games/dlc. If Microsoft was smart, they could use the hype generated from having these characters in Smash to reboot some of these franchises on the Xbox platform. It would be a mutually beneficial partnership between the two companies.