I don't think it would be so good for Mortal Kombat, it would take away all the influence and originality from the original characters.

As for the developing thing it would be real cool to see that done to the playable characters in the character roster of the game. I like the whole "developing" idea, not the creating your own character idea.

I think character creation in console games are more of a gimmick, most of the time, there is only a preset list of moves and a preset list of costumes and colors, so your really not creating your own character rather just picking a combination of premade choices. Now, if they allow this for the PC, it would be great, people could make their own character models, animation, textures, hell, even their own backgrounds. They would also be able to add their own sound and endings etc... Which is why if they do this, it's best to be left on a PC version of the game.

I think as a reward for winning the game you should be able to cut-and paste pars, moves, etc. of characters...
for example... if this was udes in MKDA, and I wanted mileena, I would:
Take Li Mei's sais
Use kitana's body and make the costume pink
add a couple of Li Mei's kicks
Add Drahamin's teleport punch
FINITO!!!! Mileena!!!

I got this idea from the "kitana" of MK4.