I think it's highly deserved.
In all actuality, Mil Mascaras did wrestle for the WWE at one time. And I'm not talking about that one-off appearance at the 1997 Royal Rumble. Mil Mascaras performed at numerous Madison Square Garden shows in the late 1970's, including a series of main event WWWF Championship matches with Superstar Billy Graham.
So if you're of the belief that only WWF/E wrestlers should be in the WWE Hall of Fame, then Mil Mascaras does fit the bill more than Antonio Inoki, Verne Gagne, Gorgeous George, and Nick Bockwinkel (Ernie Ladd is not in that category as he did have a long, successful career in the WWE during the 1960's and 1970's. He was long retired by the time "WCW" came to prominence).
Even still the WWE is trying to expand it's HOF into a legitimate pro wrestling HOF, and not just the WWE, hence why they have inducted some of the most important wrestlers in history regardless of whether they wrestled for the WWE or not. And with that said, Mil Mascaras is an essential inductee for the HOF.
Other than El Santo, Mil Mascaras is probably the most influential and famous wrestler in the history of Mexico. If I remember correctly he was the first masked wrestler to wrestle in Madison Square Garden, and he did a lot to help expose Mexican pro wrestling to America. He was a constant headliner wherever he went. He was a constant presence on all of the American wrestling magazines in his heyday. Many American pro wrestling fans of the 1970's and 1980's were introduced to Mexican pro wrestling due to Mil Mascaras. He is one of the most recognized wrestlers on a world-wide basis in history. He absolutely deserves it.
And if you're not going to include him "because of his massive ego" well, I guess we can't have a WWE HOF, then now can we? I mean what wrestler doesn't have a huge ego? I guess no Hulk Hogan, no Shawn Michaels, no Bret Hart, no Stone Cold, no Ric Flair.