Didn't caped Mario turn to Super Mario after damage?
This is a bit of a weird topic, because what exactly happens to Mario upon taking damage with a power-up has indeed changed across different releases of games. I found this reference on the Super Mario Wiki page of Super Mario Bros. 3:
In international releases of this game, after players obtain a power-up that is greater than a Super Mushroom, any injury will turn them back to their super form, like in every platformer Mario game after Super Mario World. In the original Japanese Famicom release, any hit reduces the player back to small form, like in Super Mario Bros., Super Mario Bros: The Lost Levels and Super Mario World.
So there are two behaviours here:
- Getting hit with a power-up puts you back into Small form.
- Super Mario Bros. (1)
- Super Mario Bros: The Lost Levels
- Super Mario Bros. 3 (JPN version only)
- Super Mario World
- Getting hit with a power-up loses the power-up, but retains Super form.
- Super Mario Bros. 3 (all non-JPN versions)
- Every other Mario game with the Small-Super-Power system
This video I found seems to confirm that, yes, you get pushed all the way back to Small upon taking damage with a Cape. And I see no indication on the wiki's SMW page that any regional differences changed the system.
Like Toomai, I can't find any SNES version of Super Mario World that has the behaviour that you recall, but I've found that the GBA versions do.
When the player gets hurt with Cape or Fire power, they won't become small and need to use the item in reserve (if any); instead, they will become Super Mario/Luigi and keep the reserve item until they are hit again.
(source: Super Mario Wiki)
I also tried it myself to confirm.