Xhaka has started every Premier League game for Arsenal so far this season.
However, Nicholas does not think Wenger needs to start a holding midfield player in home games.
Nicholas expects Alexis Sanchez to come back into the starting XI in place of the injured Danny Welbeck, after the Chilean started the 0-0 draw with Chelsea on the bench.
“Sanchez comes in because Welbeck’s injured, there’s the replacement,” Nicholas said on Sky Sports.
“Do Arsenal seriously need a holding midfield player when you’re playing at home?
“They might say ‘well they’ll be too attack minded’. But they’re attack minded when they have a holding midfield player so I would leave Xhaka out.
“I would consider leaving him out and say ‘I’m going to go with (Mesut) Ozil, (Aaron) Ramsey’.
“You’d take the risk at home, Arsenal need to start getting a bit of momentum, getting the fans right behind them again.
“They’ve actually got a run of games coming up that they have that opportunity now.
“Maybe Everton away (is their next big game), I know they’re not doing great but that’s an awkward one for Arsenal.
“They need the momentum, they need the belief in the fans to start coming through.”
After West Brom, Arsene Wenger‘s side travel to Bate Borisov in the Europa League on Thursday (6pm), before Brighton visit the Emirates next Sunday (12pm).