Edit 1/24/04
Okay, apperently this idea I had spent so long formulating couldn't possibly be true. Although it's likley that a red ninja was used for the motion capture, I didn't quite understand the scenario presented. I thought that all that happened was scorpion turned red and it said "ermac wins" at the end of the round. Like during a two player game, someone chooses scorpion and when the round begins it was like "Wait, why am I red? Ermac wins? wtf?"
So INSTEAD I'm posting this other theory. This isn't my idea, but it was brought to my attention by Sakura in the other Ermac thread and it makes more sense.
[new idea] Ermac was a red ninja programmed into earlier versions of the MK1 arcade as some sort of an "error trap" which kinda makes sense. An "error trap" would be something that traps an error so to speak so it can be fixed or corrected. What Ermac could be is like the Ermac rooms in the old game Smash TV. In Smash TV, when the game was crashing it tried to correct itself, but while it was doing this the game created "ermac rooms" to keep the player busy while the game fixed itself. Same could be true for the "Ermac" in MK1. For some really strange reason a player could have done some one in a billion chance of fucking up the game to where the game would fix itself, but to keep the player busy while the game trapped the error, it would dispatch the red ninja and it would pop out of nowhere like an endurance round or something. This actually sounds more plasuable than my other idea anyways. Really, no one else has "seen" Ermac except for the one guy that wrote into EGM and pushlished the polariod of it back in '92 but that would also make sense why no one has ever seen the "Ermac" counter go above zero too. The game has never needed to trap the error in any other machines. [/new idea]
Here's the old idea . . .
- Begin common knowledge -

EDIT Just theory, not fact like I originally though.
In earlier versions of the MK1 arcade machine there was a glitch that turned Scorpion red and replaced the "Scorpion" in the life bar with "Ermac" which is short for ERror MACro. People were convinced that Ermac was a secret charecter since there was a "Ermac" counter in the game, but it was really there just to keep track of how many errors and glitches the game came across

- End common knowledge -

Now here's the thing... There were a lot of people (including myself) who were really sceptical about this "Ermac" actually being in MK1. The main thing I kept questioning was "How could Ermac be shaded red perfectly?! I could understand if he had SOME red, but to make that charecter look like that the development team would have to had specifically created a sprite-set.

I think I have a theory why Ermac is shaded so perfectly. Since they probably wanted to keep the file-size down, all the MK1 ninjas probably used the exact same sprite set. When the player selected a ninja, say sub-zero, the game probably went something like:

If sub-zero = Load the sub-zero's moves + BLUE color pallet

Same thing with Scorpion and Reptile. Now I got this idea when I was watching the history of MK on MKDA and they were showing quick clips of MK3 behind the scenes and they showed Sub Zero and Kitana's actors all dressed up in RED. I'm like "Oh, DUH. They're using a blue-screen so they can't have BLUE outfits or they'll be transparent in game!". I'm 90% sure they did this with the MK1 ninjas as well. I'm sure the Scorpion/Sub Zero/Reptile costume was actually red when the motion capture was created, which brings me to my thoery as to what the error Ermac really is.

The error is

Scorpion = Load scorpions moves + *Error* Cannot load scorpion's pallet. No pallet loaded. Generating ERror MACro.

I'm not sure what would lead to this error, but since it cannot load the pallet it is forced to display the sprite as it was captured, and since the MK1 ninjas were captured with a red costume, it loads a red Ninja

http://www.geocities.com/quirkphinder/ermac.gif

...of course, this all goes right out the window if it turns out each charecter had a pre-colored sprite set ahead of time. Anyone think I'm right?