I also installed the xci with zerotwoxci. I tried to convert it to nsp but I must have failed since it wouldn't start anymore.
It may work with an older version of firmware? I cannot try it right now. I'm also not sure what is the minimum firmware version for Smash 1.2.1.
I have exactly the same issue with SSBU. I tried Atmosphere and ReiNX, with a 6.2 firmware and 1.2.1 game update.
If you find a solution, please share ;-)