Disclaimer: I've never developed a MUGEN work in my life. These are just my ideas I'm putting down for further reference and feedback. These will be used in a possible MUGEN project of mine. All these ideas are given from an artistic-prone point of view.
Character design is a tricky affair. It has to be just right to make you like the character. Important factors I identify in this topic, or rather, their absence, can make or break a character.
First off, let's talk about sprites. A sprite is the main thing that gives your character a personality. Clothes, stance, face and movement are all important to give you an accurate opinion as to how a character would act in a hypothetical real-life situation. Therefore, I think it's best that we use the most expressive and fine sprites we can when designing a character.
Some sprites are bad, real bad. Like some CvS sprites. They're horrible. Some are so terrible, they're an insult to the original characters, mostly SNK, obviously (damn you Capcom). Examples include Ryo, who looks more like a joke character than anything. An example of a great Ryo sprite would be found in KoF XI for example, which is also the latest KoF installment, therefore sprites are fresher, despite being obvious rehashes.
On the flip side, looking at what SNK did with SvC Chaos, I'm very happy with most characters. Sagat looks very menacing and I love the grin, although a bit skinny and humpback-ish, and I don't like the Tiger Genocide. Vega simply flows, although hit and move animations look a bit twitchy(maybe because he's insane). Ken/Gouki/Ryu look great, they greatly resemble the Capcom feel, with a SNK twist and Violent Ken is greatly inspired. I especially like how SNK has managed to capture the "SFA" Ken feeling with a SF3-ish Ken, a feeling mostly missing in the original SF3 Ken and apparently, completely missing in SF4. Hugo looks retarded, but that's how he is anyway. Tessa exudes of a great personality too. IMO, a cross between SF3 graphic flows and sprites and SvC sprites would result in a superb array of personality hints.
Most importantly, animations should flow naturally to give an impression of artistry.
The voice is the most important aspect of a character's sound panoply, followed by special move sounds, and normal move sounds. Music is, however, in a completely separate category and is just as important as the voice. The voice has to be clear, and a bit louder than the specials/normals sounds, however not annoyingly louder. It should just about go over the second two's sounds.
I have yet to identify the volume level background music should have but as a rule of thumb, it shouldn't be too loud or too quiet. Naturally, volume levels should be consistent with all characters and stage songs.
Special/Super move effects should be extremely impressive and flashy while at the same time not being overkill, like covering the entire screen or something. They should mirror the character's overall power first and foremost. If it's a character like Bison, obviously he's going to be completely covered in dark-purple-flaming-psycho-energy during Psycho Crushers/Psycho Drives. If it's a weaker character like Sakura, naturally she won't be surrounded in Hadou energy, but rather, we'll just see small-medium amounts released during (Shinkuu) Hadoukens. Naturally these apply only if you want to somehow remain faithful to the original characters and are relative to the author's wishes anyway. The most important aspect however is, regardless of how big or small the amount of energy they possess is, that it be impressive, flow/burn/etc intensely so that it creates another aspect of the character's personality.
Last but certainly not least is the character's array of moves. To put it all in one word they should be MANY! And very diverse. Here's my preference on the numbering of the different types of moves:
Normal specials: between 1 and 4 (I find 3 to be a comfortable number)
Specials: at least 5 and at most 7 (this should not include EX moves, if you plan to add any)
Supers: 2 to 4 regular supers, 2 greater supers and 1 final super.
Note on super moves: I do not take the Capcom way when designing supers, which is basically taking a special and giving it steroids to become a super. This makes everything extremely generic and unoriginal, and does not help towards contouring your character's feel at all. It's the reason why I don't condone the existence of EX moves either. A good example would be the Gou Shoryuken/Shoryu Reppa. It's just 3 Shoryuken's in a row. Excuse me while I yawn...
This covers what I think are the important aspects of character design. A lesser one also worth mentioning is:
I've never been much of a hit-spark fan, however I find the lack of hit-sparks is also annoying. I've realized they help create the idea of impact. In my view, hit-sparks should be small and localized at the area of impact. You might say they're all like that but I've seen horrible hit-sparks that completely cover the receiver's block/parry animations when they happen and go even beyond his body when they dissipate. Hit-sparks for normal moves should have a neutral color as to not detract from the action and special move hit sparks should share the color of the special move's energy, if any and if not, neutral again.
This concludes our "create it like a wannabe artist" tutorial, brought to you by AxL. I reiterate, these are my opinions only. Your mileage may vary. Should you choose to follow them, I'd love to see your work.
Note: have you noticed how I didn't talk about move specifications like priorities, downtime, etc.? This is because they belong to an entirely separate part of character design I name "character gameplay".