Well.. - did you open mugen.cfg & changed the motif setting to either one of these?
;motif = data/Custom/system.def
;motif = data/Custom319/system.def
;motif = data/Custom600/system.def
;motif = data/Normal/system.def
;motif = data/Normal319/system.def
motif = data/Normal600/system.def <--------------------
Ok, lets say you chose the Normal600 system.
- go to data & open the normal600 folder, you'll see select.def & a system.def file.
- add ur chars in that select.def file & try your MUGEN out.