Lol, I started a thread about a year ago with this very same idea. I had worked on it for almost two hours, had a long ass essay on how and why this would work, had graphics and everything. Then when I was wrapping it up, my browser crashed and I lost it.
So obviously, I concur with everything you said. The biggest argument against it I see people make are, "But Nintendo characters are short! How would you do Mario vs. Ryu?" Admittedly, I haven't seen anyone say that in years, but TvC showed how it would work with characters of all sizes, and both Capcom and Nintendo have tons of chibi-sized characters and regular human proportioned characters to make it all work.
And if you think about it, a lot of groundwork has already been laid by both companies. You could copy-paste a ton of moves and combos from SSB and tweak them to work in a TvC style format. Mario, for instance, is clearly a shotaclone (Ryu clone):
Uppercut = Shouryuken/Dragon Punch
Fireball = Hadouken/Fireball
Tornado Spin = Tatsumaki Jiten/Hurricane Kick
FLUDD = Donkey Kick
You got your slow bruiser with no projectiles in DK who would matchup against Zangief/Alex/Haggar, your agile female who controls the air in Samus would matchup against Chun Li, and so on. This game needs to happen.
