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Square and Nintendo made amends well over a decade ago, man. At this point Nintendo hardware has gotten loads of Square Enix games, including several Final Fantasys. Heck, there is a port of Dragon Quest 8 being localized in a few weeks. They have Sonic, a mascot for a company that was actually a pretty serious rival to them for years and made some really harsh ads during the height of that. And SEGA really hasn't been making games for Nintendo consoles for much longer than Square has since they returned.
And can you really blame Square for leaving? They had a vision for a game, that vision required CDrom technology, something everyone but Nintendo was doing in 1996. So what do you expect them to do? Change their vision because Nintendo made a console with an outdated storage medium? Or bring that vision to a perfectly viable system that could handle it? And don't forget, Square isn't the only company that left: Enix, before they merged with Square, Enix made a whopping 2 games for N64 before moving nearly all their output to PlayStation.
I mean, yeah, it's a little weird having Cloud in a Smash Bros game given that his main game has never been ported to a Nintendo console. But Final Fantasy as a whole has a lot of history with Nintendo, and Cloud is easily the most recognizable character from the franchise, so it makes sense.