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Near the end of Luigi’s Mansion 3, when Peach is rescued from her painting before the final battle, one of her animations in the cutscene has her extend her neck to an irregular length.
At the end of the 1993 Super Mario Bros. movie, Daisy is wearing her own jumpsuit in the style of the ones worn by Mario and Luigi, but in that scene, she wears a jacket over it that covers most of it up, making it barely recognizable. This production photo provides an unobscured look at the design of the outfit.
In Super Mario World, if Mario uses the Cape to fly towards the keyhole in Donut Plains 1, lands on the upper platform and immediately inserts the key (as opposed to reaching it with Yoshi as intended, or landing on the lower platform), a graphical glitch will occur and the palettes of every object on the screen will be corrupted for the duration of the level exit animation.
It's interesting that this is pointed out: the conundrum of how short characters should be portrayed. Of course, one of the signature traits short characters have are, well, they're short. But this is not simply feasible as a mascot costume because not everybody can be short like them. So they ignore the character heights and make them a bit shorter than the taller characters.
Even Asterix is not portrayed as a midget as a mascot costume AND the live-action films, just shorter than Obelix. (Not putting the picture directly in the thread here because of this thread's topic of uncanny Mario pictures, and they are obviously not Mario-related) I personally thought it was odd that Asterix wasn't short in the live-action film, but I think it's fine because I understand the relatively unrealistic concessions required to have a realistically short character.
So I think I am in the unpopular camp and think that a Diddy that's merely slightly shorter than Donkey Kong is fine.