Here's the thing - I loved the potential it had. When I was younger and this came out, I wasn't disappointed by it. I enjoyed it at the time. Looking back, it's a bit of a slog to get through.
I hesitate to say I dislike it though, because I don't really. The cutscenes were great, and the concept of bringing these characters together is one that I love. I would've loved getting rid of the generic enemies and creating better worlds specific to the franchises included. I also agree with the idea that the physics and Kirby gameplay were just not a great fit for what they wanted to accomplish here.
With that said, what would be better? In almost any direction you go, you're a better fit for one franchise than another. You can't make each character's gameplay like their game of origin, otherwise you're just slapping a bunch of different games together to try to make a story. Maybe that could work, but there're so many characters that it would make for a mess of game design. As well, bringing one character into the gameplay style of another (Mario into Metroid, Olimar into Zelda, Kirby into Pokémon, etc.) can result in a lot of messy things, plus which gameplay styles are chosen and which aren't?
Seems like it'd have to be its own gameplay style, something like how Kingdom Hearts crosses over worlds with Disney (though those are movie characters, so no pre-existing gameplay ideas are there) and it has its own gameplay style. But then you're not in a Smash Bros. game.
I think that really says it. I think a sandbox-y sort of game featuring a crossover of a bunch of Nintendo franchises could work, but Smash Bros. gameplay limits it significantly (as most fighting games do). Not sure what the right answer is, but I'd lean more towards this kind of thing being its own game, shaking free of the Smash Bros. stuff.
That all said, I'd love to see some sort of story mode in Smash, or at least something resembling enjoyable single player gameplay (Smash Tour is not good).