I understand. At the very least, perhaps he could be considered as a possible back-up plan in case Nintendo decides to flex it's muscles once again?. A legal version of MKF only containing popular public domain characters and scenarios would be interesting, so far as the MKF team would be willing to continue on afterwards. It would be a way of ensuring that the team's work won't ever go to waste, and it would open the door to monetisation as well.
I could see Steamboat Mickey and Minnie taking over for Mario and Luigi, Steamboat Pete could be Wario, and the various worlds could be transformed (via palette swaps) into something else. Just on the top of my head, the Hell world could use Freedoom assets instead of Doom ones. Many sprites and backgrounds would have to be edited here and there to make them legally distinct of course, but if the project were to reach the 1.0 stage a lot of the stuff would have already been made, so the bulk of the work would already be done. The game could ultimately take the form of a pastiche of retro gaming and entertainment, rather than explicitly featuring such characters and scenarios. These are just my two cents, of course.