Most types of combo systems are fine, try in keep in mind the getting hit sprites of other characters though, stuff like Tekken type juggled animations might not be accommodated for in most sprite sheets.

No rule against it, but once again try to create “grabs” that don’t require too specific poses* (Like a headlock*) try making grab attacks that can use the sprites like grounded or knocked back. Or you could just make unblockable moves in their place.

Go right ahead, special moves are allowed.

Same with ultimates.

Nice

No, you just make a character and movieclips with all the required animations at 15-20 FPS.