Winmugen allows that you not only create characters but everything about a fighting game such as Stage, Screenpack etc. You can create or download Mugen characters made by others from popular games like Sonic and Mario, chars from animes like Naruto and DBZ and much more. It was developed by Elecbyte and first released in 1999 for free. M.U.G.E.N ( Wikipedia) is a free software or game engine that allows any person to create his own 2D fighting game.
