I'm going that way, yes, keeping the characters as they are in SMAAAASH!!, with the idea being that Norbert is Red's Charizard, like normal, and Hammer Bro and some off-the-street Ivysaur play the roles of his other Pokémon for Brawl, like a movie.

As for the later half, it look like we've got our first implied death. Rest in Peach, Peace.