It's definitely people playing, just not live, spectating doesn't necessarily apply that the match is happening that moment, I've seen some things that CPU's would never do, like not playing... I've seen that.
Vince, very nice interpretation of the characters and their places, even if you didn't make it up, I do think that Sonic, even if this is his best game in awhile, wasn't in the Supspace until the very end, even if some might consider him the hero. I'm not going to lie, I liked Sonic Heroes.
PhragX is right, I've had this happen in a friend match, when Tinkle from the Zelda Series is summoned one of three things can happen, this is one is rare I believe but I've seen it, no glitch, just a rare happening.