I loved all of the references. Link's Awakening is set in a "dream world" and is probably the Zelda game where that kind of a cross-over makes the most sense. Be on the lookout for Kirby late in the game!
It really depends on the game in question. With the latest Mario Kart, I saw no reason to start adding Link, the Splatoon kids and other such drivers to the game. I always looked at Mario Kart as a kart-racing game set in the Mushroom Kingdom, so it made sense like if Donkey Kong showed up since Mario's first game was Donkey Kong, but otherwise it's mostly characters from those games. It doesn't really make too much difference one way or the other if it's got these new characters, but it just kind of felt out of place for that particular game.
On the flip-side, I think Smash Bros. did it right. I felt like shoehorning a story or some semblance of a story into Smash Bros. just ruins it more, in my opinion they got it right in the first game where they were shown to be figurines that come to life, and are being controlled by Master Hand. Smash Bros. set off on the right foot by being the one game where all of these different Nintendo 1st and 2nd party properties could converge. Since Brawl they seem more concerned with just fitting as many characters in the game regardless of whether they do anything original or really fit. And once they started adding 3rd party characters it felt like it broke the Nintendo barrier too much.
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