The most important thing with the camera is that it zooms and pans correctly to keep all the action on the screen. Here's a quick algorithm you can use:

-Get a list of all the important things that need to be displayed, like player characters and projectiles. The camera viewport needs to be adjusted to fit all these things on the screen.

-Go through the list and find the max X, max Y, min X, and min Y values of the object positions. This gives you the rectangle containing the required viewing area.

-Now the desired viewing area needs to be adjusted to fit the aspect ratio of the window. A formula you can use is:

Y/X = A+i/B+j

where X is the width of the screen, Y is the height of the screen, A is the height of your desired viewing area, B is the width of the desired viewing area, i is the amount the height needs to be adjusted, and j is the amount the width needs to be adjusted.

If A/B is less than Y/X, it means your rectangle is too wide and the height needs to be adjusted. Set j=0 and solve the equation for i. You need to move the top of your rectangle by +i/2 and the bottom by -i/2.

If A/B is greater than Y/X, it means your rectanlge it too tall and the width needs to be adjusted. Set i=0 and solve the equation for j. You need to move the right of your rectangle by +i/2 and the left by -i/2.

-Now all you have to do is set the camera's projection to the rectangle you came up with, and it should always snap to fit everything on the screen. There are a few other tricks you can do to prevent the camera from "popping" and get smoother panning and zooming, but this should get you started :)

(also, you can peep Super Pillow Fighter if you want to see a camera that behaves like this) :)

Yeah, that movie looks like it would be pretty fun to play :)
I like how fast the characters move, and how they are constantly bouncing all over the screen. It would be pretty cool to be able to double jump and air dash as much as you want. I don't think I've ever played a fighter with air game like that.

Instead of using the classic empty arena why not put stuff in the environment that is useable. I'm not a big fighting game fan so I could be wrong but I don't recall seeing this very often.

(Picture a bar fight where both fightings can pick up chairs, tables, and/or bottles)

I think the concept of a 2-D fighting game is fundamentally good. It may be an old idea, but people still really enjoy playing them. People just love hurting things I guess.

I think the key problem people find in playing 2-D fighting games is that they usually LOOK old. I know gameplay is key to what makes a game fun, but it's equally true that appearance is important. For example, Total Annihilation is one of my favourite games of all time. When it was made, it looked amazing too. Now, however, if I go back and play it I find it harder to get into because, simply, it looks old. It distracts me a little from what I'm doing. I do really enjoy the game, so I quickly get over this... but if you're only playing for some quick arcade-y action, like you would in a 2-D fighting game, it could be a problem.

So I think, assuming you have a working, smooth system of combat, one of the best steps you could do would be to make some nice art for the game. Stick in some high resolution, perspective-scrolling backgrounds. Maybe some animated middle-ground/foreground activity. An example would be falling leaves or weather. Make sure the characters look good. Throw in some nice-looking effects for special moves and it'll look amazing.

In terms of fun features there are lots of options up your sleeve. First up, I think the idea of items littering the arenas is a good one. Things that fit in with the theme of the particular arena especially. You could even go further with arena interaction. I mentioned weather for example. You could apply weather effects on your combat. Snow might build up and be knocked away by fighting, slowing down characters. You could make the arena slippery when wet. You could make hail which would do slight damage, or lightning which will build up in the clouds above an area, giving players a short warning to move. What you would do would depend on your arena, as there are lots of non-weather options too. For example: breaking supports, crumbling floors, steam pipes, even rudimentary AI animals of some description.

In terms of combat interaction, you could try introducing a parrying/countering system which would allow quick-fingered players to parry an opponent's blow and return some sort of counter-attack. This allows you to add lots more cool-looking special moves without cluttering the controls. It also adds that brilliant moment of satisfaction as you deny your foe, before sending him sprawling backward.

Another idea I've heard of somewhere (I think CoD 4?) that I thought was interesting was a last-chance system of sorts. I don't know exactly how your 'KO' moments are going to work, so this may be irrelevant. You could design a system which would allow a player who is about to die one last chance to avoid death and retaliate.

I think the control system is what will make or break this kind of game. Long combos I personally find quite annoying. I think, as the Iron Chef Carnage said, that a combo system similar to Super Smash Bros would be quite effective. Maybe, if you'd like to add more choice, you could slightly expand this retinue with double-taps or moves which change depending on your location in relation to the enemy. If you want to spend a long time coding you could try to do something similar to Assassin's creed, which is movement-based controls. That might take a lot of work which isn't really necessary though.

Anyway, I think that's all I could suggest right now. If you make it look good and make the controls interesting then I think you'll make a great game. If you look at Flow (PS3), it was basically snake, but people loved it because it had a unique visual style and a different, fresh way to move.

Good luck. :)