It doesn't work, because only the host can take damage, there's a bunch of stuff that breaks with more than 1 player (like one level which requires you to get 50 out of 60 coins - what happens if both players get half the coins?) and of course death pits which do not work AT ALL if played online.
Of course, it's up to players how they choose to play it. Still, it's a very strange way to play, and probably not even possible in some levels.
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