If you do decide to add Ermac, Fabrytaz has made a more modern rendition of his sprites which still should work with the style of your game, same with Scorpion if you ever wanted to use those instead of the current ones, although the current ones are fine. Even Sub-Zero if you wanted him as an alt, although it's the unmasked version.
I really think Fiona is coming along well, I think that Huey himself should be the UT personally, like forward + UT, back + UT, down+UT could be moves for her, where maybe forward is the grab, down is the search, and back is something else, that way you can't abuse also just shooting him out there to take hits too I guess. Otherwise I think the idea of the search function works, or even just Huey as a grab/hold. I wish I knew more about Haunting Ground to give more relevant insight but I think you're definitely on the right track. Also I love how you used the stalkers from the original sprites that one is really good!
I know this is less of a concern but is the creator of your original stages still active? if not maybe you can always ask if you can use something like Charles_2011's work. He's got a fair bit of stages/edits made, and aesthetically I think the game might look nicer with more pixel-art based stages, but that's mostly just my own preference. Here's some examples of his work if you haven't seen them.
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