I have a few favorite characters in the Zelda series. One of them would have to be, actually, Navi. Although to some, she might've been a major pain in the hide, she did have somewhat an important role in the game. That role doesn't include annoying Link to the point of insanity, but more of moving the game forward and, in some cases, helping the plot.
It has to be said, but, in terms of character development, I would say that Midna would be one of the best. However, Midna and Linebeck (I) both went through the same style of development: They both have their own agendas, but then it starts to become personal. That, I really like in the two games. Linebeck was an awesome character, but he just wasn't as awesome as Midna...but defiantly cooler.
Now, in terms of overall character and how it affects the plot, it must be said, Tetra. I mean, at first, she doesn't even know you, yet you save her life and repays her debt (through some tough thinking) by hurling you into a pirate fortress. However, she feels concerned about all of the things that are going down, and when she learns that Ganon would be heading to Outset to destroy it in an attempt to find Jabun the same way he destroyed the Windfish Island, she robs a bomb store and is willing to defend Outset...until she realized that Link was already trying to do it. Once she learned she's Zelda, then it takes quite a few changes in character there. Then, we have Phantom Hourglass, where they're pretty much almost like a happy couple, then we have no clue what happens in the time during Phantom Hourglass and Spirit Tracks besides the fact that Tetra was the first leader of the new Hyrule.
So, yeah, my favorites were Navi, Midna, Linebeck (I), and Tetra. Love it, hate it, it's my opinion.