As can be seen here, the Geometry on Luigi's character model and, to a slightly lesser degree, on Toad's is not rendering properly in the development build 4.0-1569 for me.
I've tried changing different graphics settings - per pixel lighting, EFB to texture vs RAM, and so on without it having any effect on this bug, and Dolphin 4.0 renders that same geometry perfectly, without any glitches at all, so there seems to have been a regression between there and the current build. Obviously, I don't expect development builds to be perfect and recognize that they're not intended for mass consumption, I just wanted to bring attention to the fact that this is a bug that exists.
Spoiler: