First of all: Wonderful idea! We have modern games for the Gamecube and PS3 with all the stars from today, and an 8 bit game with all the stars from the past is really cool! With enough time and well programming, it will be a great brawler.
Sadly it´s not for the Master System, which would be way better (especially if you bring it on cart maybe). How many characters do you plan for the game? My ideas are: Alex Kidd, Sonic, Psycho Fox, Mickey, Donald, Chuck Jr., Asterix, Joe Musashi and Michael Jackson from Moonwalker (I think he deserves it as an honour for his passion for Sega).
I decided to make it for the MD because it's much easier : more colors, more powerful, and the development tools are easier to use. It could be for the MS, but with much more efforts, for example all characters would have to be redrawn using the same palette of colors. And I'll have to use C langage, or assembly, to program on MS. I'm far better in BASIC so I use BasiEgaXorz which is exclusive to the MD...
So far I plan to use all Sega specific characters first, so no Mickey, Donald or Michael, but I can still change my mind.