It seems that people have been finding trouble recreating this with the actual console. If anybody can get it working I'd like it know. The attached video was apparently recreated using an emulator.
"It's been seven years since the release of Super Smash Bro. for the N64, and it was just today that a new secret has been discovered. You can actually play as Master Hand, using a strange and unbelievable method. It may sound impossible, but all you have to do is rotate your analog stick exactly 30 times while in the character selection screen."
http://youtube.com/watch?v=6CiiDYeOxi0