This is how I'd like to see Johnny dressed if they ever redid MK1 with modern graphics. I decided to turn the sash blue since that's his color in every other game, put his name on the shorts because a movie star would have customized gear. As for his arms, I just figured asymmetry is good and combined elements from a few of his costumes in other games. The background is a photo of Los Angeles, and the star in his name is from the Walk of Fame.
Photoshop. I just select an area I want colored, fill it in on an empty layer, then lower the transparency so you can see the lines underneath. Kind of a lazy way to do it, since some people would get rid of all the white in the drawing and put the lines as the top-most layer so they don't have to do the transparency step and the colors they use will be more intense, but I kinda like the way this looks more, especially with the skin, where you shouldn't want the lines of the muscles to be pure black.
Reptile stands as straight as everyone else in the actual games.
And I actually did the shiny look of the pants by hand. I only use bevel and emboss on surfaces that are small, like the trim of a ninja's tunic, or a shape with corners and stuff like their shinguards.