I would do away with the baby characters and Petey. If I absolutely had to put in a baby character, only Baby Yoshi would make the cut. Since, you know, he's the only one that truly matters. I like the idea of having costumes/color changes. I want to see more of that in Mario Kart: give us more Smash Bros-like options. Music frequency, item frequency, which stages appear when you hit random.. things like that.
I agree that the original 8 (Mario, Luigi, Peach, Toad, Yoshi, Bowser, DK, Wario) should be in, as well as the secondary set(Waluigi, Toadette, Daisy, Koopa Troopa, Diddy Kong, and perhaps Magikoopa/Kamek..) Any characters that are just bones and tendons will be considered, as well as the undead. Characters with no hands (Mostly the Goomba family) would likely not be in since they would just raise questions about driving skill..
Course creator is an option I'm almost surprised they haven't done yet. I say almost because, while it would be fun, the series has done just fine thus far without one.