Yes you need winrar. And yes you can put any character in any mugen. Or you can download the default mugen engine and customize it to your wants with lifebars, stages, screenpacks, etc. It doesn't have to be a Naruto Mugen. (Which kinda makes me hate Ristar87 for making compilation games and passing them off as full games which suck.) Anyways back to your first question, to add new characters you use winrar to extract the character's files to a folder. (Make sure that a folder is not in another folder EX: Guy -> guy) Place that folder in your "chars" folder in your mugen folder. Then open "select.def" (In the data folder) with notepad look lines that look like this:
kfm; -or- kfm; stages/kfm.def
and type your character's folder name on a new line just like the kfm example:
guy;
Save then test it. If doesn't work repeat the steps to see if you'd missed something.
