I take it there was a lot of lag while playing this match? It looks like the spacing was hardly there, and that can easily be contributed to wifi lag.
Try to avoid always throwing bananas directly at Diddy. Good ones will instant-toss them back at you almost every time, so it's better to "guard" bananas or play "keep away" with them sometimes, make them come to you (especially if you have both). Sometimes throwing them up, Z-dropping them while approaching, or throwing them far away are good ideas to make them less accessible to Diddy, or slip him up for an opportunity.
That diddy really didn't know the MU, if you ever see a Diddy not have his bananas out, make sure to capitalize, Sheik is really good against banana-less diddy.
That ftilt -> utilt -> DA, I think a dash grab/boost grab would've been a better idea after the utilt, or if you wanted to be safe, a dash -> RAR'd bair or nair/fair would've been a good followup.
You sit in shield a lot, not a good idea when playing as sheik, unless diddy has bananas out. Sheik thrives on moving around a lot, she's very mobile and able to harass the opponent very well, putting up shield makes you slow down more. Shield is needed in this MU though because it's one of the best ways to deal with bananas.
Now, when you do see Diddy pull out bananas, make sure to shoot your needles at him. His banana pull animation is very slow, and you can often hit him with your needles for free damage, even when he jumps in the air to pull them out.
Use less fsmash, I'm sure half of them were accidental and meant to be ftilts, but fsmash as a whole, as you've noticed, isn't a good move :\. Lots of commitment, hardly ever kills for how laggy it is, and half the time the opponent doesn't get hit by the second hit.
Some of your options were good, like you know the gist of how to followup after ftilt, but you should also think about where the opponent is going to be, especially on wifi. Pressuring is hard to do when you don't have precise control over your character, so you often have to think a step ahead. For example, instead of those times where you overextended yourself. For example, at 4:12, instead of that full hop nair and letting diddy have the center stage again, you could do a SH Air dodge backwards to provoke a response and re-position yourself to get underneath him, so you can utilt, uair, fair, etc. If you see him move backwards with like a peanut gun reversal instead to try to get back onto the ledge, you can chase him down or just wait for him on the ledge while charging needles. This is sort of what they call being "Option smart", if you can start to think like this, you're already halfway there
You fullhopped a looooot, you should only jump that high when,
A: The opponent is too high for a SH to hit with uair/bair
B: To bait the opponent into approaching because they think they can juggle you from underneath.
If you use a full hop as an approach, you don't put the pressure on the opponent very much, and you leave yourself wide open to getting grabbed/juggled. Do more SHs, even empty ones w/ no attacks or air dodges are really good at making the opponent have to guess what you're going to do next (watch some of Cross/Earth's sheik vids, they're really good at making the opponent feel pressured and not be able to punish so easily).