So how does Deadpool's trait work with penetrating damage?

it doesn't. Deadpools SP doesn't reduce damage.

RIDICULOUS REGENERATION: Whenever Deadpool would be dealt damage from an attack, roll a d6 instead. On a result of 1, he takes that damage plus 1. On a result of a 2-3 he takes the normal amount of damage. On a result of a 4-5 he takes 1 damage. On a result of a 6, he heals 1 damage instead.

nothing in the text says that it reduces damage. Penetrating merely can't be reduced by damage reducers.

example:
INVULNERABILITY (NON-OPTIONAL) Damage dealt to this character is reduced by 2.

from the 2010 rulebook
PENETRATING DAMAGE: Damage dealt that can’t be reduced.

PENETRATING/PSYCHIC BLAST Give this character a ranged combat action. Damage from the attack is penetrating damage.
EXPLOIT WEAKNESS Give this character a close combat action. Damage from the attack is penetrating damage.

That is to say, Deadpool's trait treats Penetrating damage like normal damage.

yess incredibly awesome. Its too bad a similar trait wasn't given to figures like Crisis KC Superman, or his E-2 counterpart, or Namor or Hercules but sadly none of those characters are as unpredictable as ole Wade.

Also in a way he dwarfs Bullseye, then in a different way Bullseye is a much better piece.

It's like they fixed the wording from Ulik's SP. Thanks guys

PONX is right

Deadpool's RR is a replacement, normal damage reducers are modifiers

I don't think it's ever actually been categorized as a game term, i.e., a replacement or something else.