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Its only speculation but a lot of the rumors usually point to either the Capcom 5 or Resident Evil 4 as being the "trigger" for the constant rejections when Brawl was early in development.
Brawl supposedly started development around mid-2005 which would place it months after RE 4 was released and Capcom announcing shortly before RE4 was released that there would be a PS2 version.
Tried to find some actual sources that would have said anything definitive about it but one was a reference to podcast that is no longer available and another is supposedly an Xplay story but can't be found due to how badly G4 mismanaged archiving stuff when they've redone their site a few times. Closest is a quote from MegaMan's creator that says he was never personally contacted around the time of the game's Japanese release although he didn't mention anything about Capcom.
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