If items are on, and all stages are open, then smash can't be played at a national competitive level. The reason games like SSFIV are played in major tournaments, while Mario Party isn't, is because sheer randomness kills a competitive scene.
for Smash to function as a high-level competitive tournament game, the randomness needs to be lowered to manageable levels. You must accept this as truth. No one is going to pay money and travel across the country to participate in a tournament if they know that all their years of practice mean nothing, because everyone has an equal chance of winning.
this is not about making the game "fair." Those who have more experience should win. Those who have more skill should win.
that said, please feel free to play the game however you want. the argument of which playstyle is better is another thing altogether. Sakurai certainly intended it to be played as you suggest. But in the practical sense, it doesn't work. It might be fun, but it doesn't work for tournaments.
I like playing with items on zany stages sometimes, too. But if I had money riding on the game, I wouldn't want to leave it up to the random number generator, d'you see what I mean?
So, I believe this mod is a step towards a better competitive scene for smash. Going back to melee is impossible, the general fanbase has shifted to brawl. Balanced Brawl is better than brawl in every regard, so assume I'm talking about that when I say "brawl." Brawl+ is dead, so it isn't viable. Brawl- is great fun, but obviously not good for tournaments. Brawl is not as good a competitive game because of reasons mentioned already. P:M I feel would be a good rallying point for the competitive community. It is cosmetically similar enough to brawl, and simple enough to implement, that getting it in the hands of the general fanbase and getting them to try it should be easy. It is also suited to competitive play, which would draw the melee crowd back. If P:M became the new standard for Smash, then I think the competitive scene would be much better.
also, I feel compelled to address the image you seem to have of "hardcore" smash players as "only fox. wavedash all the time. final destination." Aside from Fox, Falco, Sheik, Marth, Jigglypuff, Captian Falcon, Peach, and possibly the Ice Climbers are all considered quite viable for a tournament. Wavedashing is only helpful for some characters, and often only slightly. I rarely use it myself. I wouldn't consider it essential to the melee meta-game. and I personally prefer battlefield to final destination, because I feel that the lack of platforms is like a quirk to itself. Other completely tourney-legal stages include: yoshi's island, fountain of dreams, dream land N64, pokemon stadium, brinstar, kongo jungle N64, and even rainbow cruise. The latter 4 are reserved for counter-picks only, though.
if it helps, imagine me as a nazi gestapo, leering creepily towards you, smiling, saying "Schee? Vee ah not all monschters." You can even imagine me wavedashing in close before I say that, if you want.