i think this might be workable as a transformation with relatively low effort if you made a different standing animation (maybe a different, floaty walk too) and just changed the palette for everything else.
That could work. Or, an idea I had was to make it work like a semi-controllable Final Psycho Crusher like move. Having Super Sonic fly back and forth about 4-5 times, while holding up or down during his flight attacks could alter his pattern dependent on which direction you're holding of course. Essentially in SSBB, this is all you'd do anyway when you get a Final Smash orb with him. Fly back and forth, knocking people off the stage. I feel though for a MUGEN standard, he shouldn't have full control. That'd make it sorta cheap. Not travel as fast as Bison's FPC, but just like that move, he can't stop his forward momentum. He'd also be completely invulnerable during it, so, I think that would balance it out very well. Just another route you may be willing to take and you'd only need a flying animation really.
I really like the custom moveset you have here. Very creative. IDK if you'd be willing to or not, just another idea. Sonic's dive kick in SSBB(D+attack in air) was a very useful and potent attack. That'd be cool if you were to incorporate that in. IDK if he has that kick anim in the sprites you have though... And you may not be willing to sprite it, which is fine. Just another suggestion you may consider.