Personally, I think that a huge amount of characters is too... overwhelming. Yes, there is variety, but when you think about it, most of those characters would probably just be clones of each other. More and more choices doesn't necessarily equal more fun. Take two examples: one, the Mii. When creating a Mii there isn't a ton of variety, so you cannot create a perfect likeness of someone. But that's the fun of it: instead you try to capture that person's essence using the choices you have, and in the end it resembles the person a lot more closer. Now on the other hand, I went to a friend's house last year, where he was playing some sort of giant robot fighter game on the Xbox (I forget the name). He was given the option of fully customizing his robot, painting each piece (and I mean every piece: any screw, pulley, surface, gun, grill, etc) a unique color. He ended up taking more time to paint the robot than actually playing the game.
Also Sakurai said somewhere (Iwata Asks interview maybe) that the characters have to be carefully decided on, in order to maintain a sense of balance. So characters cannot be randomly thrown in, otherwise it seems out of wack.
