Excellent.
I've been keeping track of Super Mario Bros. Z for quite a while now since it's debut. I've been very satisfied with how it's been progressing in both story and style. I enjoyed this latest one quite a lot. However, with the newest developments (though I won't openly spoil anything) I have a few suggestions I would like you to possibly consider. Don't worry, they aren't silly suggestions and I feel they're perfectly logical.
1) Luigi should eventually pull a solo fight or do something a little more than run away. In this installment, his involvement was more comic relief than anything. That's all well and good, but though Luigi is more cowardly than Mario, he deserves a chance to show that he's not just dead weight in the party. Sure he's fought some in other episodes, but it seems with more powerful opponents coming along, he's acting more like a tool than a fighter. Luigi definately needs to get angry eventually. During a certain event in this episode involving Mario, I was thinking in my mind "Yes! Luigi's going to go ape-shit now!" Not the case. He just became the medical aid. So again, give the man some spotlight eventually. Like Gohan is to Goku, Luigi has the power to kick more ass than Mario if pissed off enough. He is supposed to be better statistically than Mario. He's just not one to fight often. Anyway, I think this makes the point.
2) Bowser should get back into the picture again soon. I know with the Axem Rangers showing up mentioning Smithy, Smithy will eventually turn up again. Bowser does need to return though (better to use the more fearsome Mario And Luigi: Partners in Time bowser sprite as the Superstar Saga one seems more cartoonish and less fearsome, but thats just my personal opinion). Besides, with what happened to the Koopa Bros, I'm sure King Bowser is going to be royally pissed off. I'd love to see him go against Mecha Sonic and actually do really well. In fact, if there was a Giga Bowser 2-D fan sprite somewhere, that would make an interesting plot device for if Bowser got a Chaos Emerald or 2. A dangerous, mindless behemoth of a monster near-unbeatable. I don't know what you have planned for the main villains (Mecha Sonic, Bowser, and Smithy) but I feel each should have equal spotlight and equal danger as far as being an enemy in a fight. A 3-way brawl between the three of them would actually be something fun to see and I bet many would think so too. Overall, though, don't count them all out. If nothing else, Bowser (since he has more of a good side than Smithy or Mecha) could help aid the group in the end like he has in times past.
3) Above all else, no matter what else happens, never forget the storyline and it's progress. Avoid plot holes as much as possible and keep things interesting. The fights are a blast indeed, but the story holds it all together. If you haven't already, I suggest writing out the full SMBZ storyline out in full and just apply it to flash overtime so you'll never make any plot mistakes. You've done well so far, but in every great series, flash or otherwise, there's always a point in the plot where something happens that shouldn't have happened.
Well, thats about everything then. Just remember to never stray from your main objective and give every character equal spotlight so every fan of every character will be happy.
And one more thing...
IT'S OVEERRR NIIIIIINE THOUUUUUUUSAAAAAAAND!!!