My two cents: I would rather them spend more time on developing other characters than to spend that time making this feature. Don't get me wrong, it's cool and all, but here is my problem with it:

In order for a fighting game to be good and interesting, there should be a variety of characters that play much differently than one another. With that, each character will have all of their own moves; there should not be a lot, or any shared moves. Because all of the characters have their own move sets, and are unique, much balance testing must be done to ensure that the characters are not over or under powered.

So, if you have a Kreate-A-Fighter option, you will have to assign the created character moves, and you could potentially create an unbalanced character, or to avoid that, they could create entire move lists that are already balanced in the game, and you could select which move set to use with your created character. Here's the problem with that: if they have an entire move list for a character balanced into the game, why not just have another character with a story, etc.?

As an alternative to Kreate-A-Fighter, I would rather see a costume customization mode. It would give players the creative freedom which they get from the Kreate-A-Fighter mode, but without the risk of unbalancing the game and extra development time. Sure they would need to program this mode as well, but because the fighting engine is not being called on, I would suspect it would take much less effort than a Kreate-A-Fighter mode.

I would like to see them go further than any game has to date with the costume customization: shirts, pants, accessories, boots/shoes....pretty much everything, and allow color adjustment as well.

I think this would be a much better option as the players still have the ability to express themselves creatively, but without either really vanilla move, or ruining the gameplay if complex movesets were available.

This. Virtua Fighter and Tekken already do this and it works wonders in providing creativity for players without risking a gameplay disaster.

I love the idea of create a fighter. But I'm a character creation junkie. I mean, every time I play a game with character creation, I create a TON of characters (I have 50 characters in Soul Calibur IV, and wish I had more slots).

But if they were going to reintroduce create a fighter into the Mortal Kombat universe there's a couple things they need to do.

1) Do not limit the number of characters you can create to ONE

One created character is absolutely unacceptable. 20 is an acceptable amount. 30 is better. 50 is awesome. Unlimited it too much to hope for, but I can dream.

2) Do NOT allow customized movesets

Soul Calibur III had a good idea with similar but different fighting styles for the created characters but they really got it right in IV. Just have the styles of the characters already in the game.

If you like, include a few non-specific movesets made just for the character creation feature.

Fatalities could either be included in the moveset or chosen from the pool of available Fatalities. Don't ever do anything like the mess that was Kreate A Fatality.

3) Do NOT include novelty costumes

It's great that you decided to include all of the necessary tools to make Sephiroth, a Power Ranger, Sailor Moon and a Teenage Mutant Ninja Turtle in Armageddon. But there was hardly any creative and unique customization options. A lot of people like to create ORIGINAL CHARACTERS.

Basically, there were pieces of the clothing that characters already in the game wore and bizarre shout outs to irrelevant stuff from the 90s.

Now I am absolutely fine with including character clothing from the game itself, but expand your horizons a bit. Include some stuff reminiscent of classic character archetypes. Include stuff similar to characters from competing fighting games. And, above all, put in some variation (don't have one t-shirt, one dress shirt, etc. etc). For an example of customization done amazingly right, check out Smackdown VS Raw 2011.
Edit: In-game character customization would also be appreciated.

I'm completely against the thought of a costume editing mode. You can make the customization options as unique to the character as possible, but we'd still end up seeing Baraka wearing a hat or Raiden in a t-shirt. To me, every character should look like they do in their renders. That's the way it's always been, that's the way it should stay. Leave customizations to Tekken and SC and all of them.

However, I'm all for Kreate a Fighter. But of course, there should be more slots, like Bezo said.