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Where exactly did you hear about that rumor? I've never came across it being mentioned by anyone on Smashboards.
What ticks me off more is type specialists using Pokémon not associated with their types, because at least the 2-3 Pokémon from the same line share the same type.
Mid-battle transformations as in Samus to ZZS, Zelda to Sheik, and Squirtle to Ivysaur to Charizard. Transformation final smashes are completely different, because they're temporary.
Red's not coming back; April's Smash Direct revealed that mid-battle transformation/switch-in characters are no longer a thing, suspiciously due to the 3DS's limitations.