Initially, I posted in this thread saying something basically like, "Oh heck yes!" but it was quickly removed by a moderator.     I'm posting again in this thread, though, in the hopes that I can offer some thoughts that are a bit more substantial, as well as better explain what is it about your work here that has me so enthused.

Not sure if I should have background rocks like this or not. I'm tempted to Fade the BG colors into the sky a bit more, anyways. Probably turn them more blue so there's no question that they belong to the sky. Bit of a mess now, too with the noisy gritty BG blocks I threw together.

I absolutely love the background rocks, the background pipes, and the statues.  You've suddenly added a dimension to the Mario universe through the simple use of sensible world construction.  Instead of blocks just floating in the air (not that you won't have plenty of that), we can now begin to imagine a structure to this world.  Things seem connected to each other.  We can imagine a network of pipes interconnecting different parts of the world.  Dare I say it, we can even imagine something like a culture for the koopas and creatures of this strange place, seeing walls and statues all over the place.  It's a small touch, conceptually, these rock and pipe backgrounds, but man, I'll tell you, when I saw that, I got such a thrill from this project.  Prior to that, I hadn't thought much more about it than: Neat Mario sprites.  After that, I could imagine an entire game world and a strong contribution to the whole Mario concept.  I really feel like this game you're mocking up (hopefully making, for real) might have the capacity to engage the imagination in that wonderful way that games did when we were kids.

I think once a power has been acquired, it should be permanently available. However, unlike animé, enemies can attack during transformation scenes, so Mario must be in a safe place and can't abuse transformation mid air (to throw a single hammer or whatever). Transformation could require that Mario have stood still for 3 seconds or so, then transformation takes another second or two to complete (poof cloud). During this time Mario is vulnerable.

Alternatively:
Mario transform a bit like Psycho fox, using up charges each time.
Not being normal Mario drains some kind of transformation energy meter.

This is probably obvious, but you'd have to do that with great balance.  I think it could be very cool.  I wouldn't suggest a full-on Metroid-style Mario, as absolutely weird and fun as that might be -- but I would urge you to make the abilities difficult to acquire, after boss battles and big challenges, if the idea is to have them be permanently available.

Additional thoughts:
I really like your concept for the world map.  I like how everything feels connected, and how well that ties in with your network of pipes and connected rocks backgrounds.  I love the idea of employing the "warp" concept where you have that pipe that can drop Marne from Pipe Mania to the Lost City.

I really dig Mario flying the plane.

I'm sorry to be so positive.  I'd be more critical, perhaps, if I had more expertise about sprite-work and pixel-art.  On that front, I'm mostly here to learn, observe, take inspiration, and pipe up here and there when I think I have something to offer.  In this case, I don't have much to offer except for enthusiasm.  But at the same time, I am learning just by reading some of the other comments and suggestions in this thread.

I agree.  I think Mush might even be able to make the skin-tone on the old man lighter (if the palette allows for it) to give the color a better dual-use.

It looks like he's waving a flag, now.  It doesn't read.  Loved the previous version.  Couldn't NES sprites have 4 colors?