Michelle's appearance in Fuller House would've caused massive problems for Stephanie's (Jodie Sweetin) story arc. For five seasons, fans waited to see if the youngest Tanner kid would finally make an appearance in the Netflix spin-off, but she was a no-show. As disappointing as this is, it's probably for the better since Michelle's presence in the Full House sequel would more likely create issues for her middle sister.
Fuller House had to work around Michelle's absence in creative ways. The show didn't waste time explaining why she's not home in San Francisco even as DJ struggled with the sudden death of her husband. Apparently, she's now based in New York where she grows her fashion empire. Behind-the-scenes, Michelle's absence was brought about by Mary-Kate and Ashley Olsen declining to reprise their sitcom role and participate in the spin-off. This was a bummer for many fans of the original sitcom considering how pivotal Michelle was in the Tanner family dynamic.
As it became increasingly apparent that Michelle was never appearing due to the Olsens' unchanging stance, Fuller House began incorporating her less and less into its episodes. In the end, there wasn't even a mention of her despite the fact that both DJ (Candace Cameron-Bure) and Stephanie were marrying on the same day. Michelle's absence in Fuller House will always be a missed opportunity for the sequel — that said, it might not be the worst thing to happen as her appearance would mean some narrative issues when it comes to Stephanie.
As a way to create a parallel between the original show and its sequel, Fuller House pretty much mimicked the premise of its predecessor. Things are kicked off when DJ untimely lost her husband, leaving her to raise three kids by herself. This motivated Stephanie and their neighbor and long-time friend Kimmy to move in to help her get back on her feet. This mirrored Danny's (Bob Saget) predicament in Full House, resulting in Jesse (John Stamos) and Joey (Dave Coulier) moving in. While there are some differences in details, the main leads of Full House and Fuller House are basically similar in characterization: DJ and Danny are the more mature member of their respective groups who recruit help following a tragic loss; Stephanie and Jesse are the happy-go-lucky rockers who change over time to become loving parents; and finally, Kimmy (Andrea Barber) and Joey are the eccentric outsiders who are treated like family. As Danny backed up in the Fuller House midseason 5 finale, Kimmy is essentially the replacement for Michelle — at least in terms of the show's story and cast dynamic.
So, if Michelle was involved in the sequel, there's no doubt she would've been partnered up with Jesse. The pair had always had a special connection — to the point that Jesse was arguably more of a father figure to her than Danny in Full House. This would've effectively bumped Stephanie to Joey which would be unfair for the Tanner middle child since she is biologically part of the family. This problem will be at its most obvious in Fuller House's series finale triple wedding where the adult cast members walking the girls down the aisle. Jesse gave Stephanie away, while Danny and Joey did the same for DJ and Kimmy. Now, if Fuller House preserved the same overall narrative, Michelle would have to walk with Jesse, while Stephanie would have to be partnered up with Joey instead.