No Ultra, what have you done..? No... NOOOOOoooooo.... @_@
... I dunno if deserve is quite a right word for it? I guess who ever seems to fit in well and is a recognizable/iconic character, then that seems fine. Cloud seems to fit in the 2nd category.
He does seem like an odd choice, as you stated, FF7 was a PS1 only title, and the start of a bad relationship between SE and Ninten. Doing this seem to remind everyone of those more terrible times.
But, it seems really cool nonetheless. Cloud is a major iconic character in the FF series, the Playstation, and RPGs in general. Having him stand among other great iconic characters makes Smash seem more like an ultimate dream cross fighter. I mean, how often does Cloud, Ryu, Sonic, Mario, Megaman, and so on get to fight together in one fighting game. Only one, and it's Smash baby B^)
As some have said today, with Cloud entering smash, it almost seems the skies the limits...