In the future, we'd love to let people draw their own moves, stages, weapons, etc. For the initial launch though, it's going to be just your own characters for the time being.
The demo video isn't real the most fair representation - Petunia, the gullible looking girl, is actually really hard for most of the other characters to beat, but damage isn't her best match-up. Trust me, I was rooting for her too.
Also, you won't have a character getting pummeled again and again - but there are some opponents you might just not have any luck beating, and for those fights you want to have a diverse base of characters.
"The only users that will be interested in your game will be people that are deeply in love with every other fighting game." - I don't think this is true at all. The feedback we've been getting range from avid gamers, casual gamers, to even people who don't game, but would love to see their hand-drawn character brought to life. The problem with setting this up as a traditional fighting game is that is then becomes immediately too technical for 95%+ of our audience, which isn't really ideal.
I understand your point, but as an avid fighting game enthusiast myself you've got to understand that the game has a broad audience of everyone who wants to upload their hand-drawn characters. From a technical aspect, it's got to be easier to grasp than even say, Super Smash Bros. Brawl, and in the eyes of the fighting game community that's about as non-technical as you can get. Developing a hard-core fighting game is a different task all in it's own, and since the idea of graFighters is to have a move pool of thousands with a character pool of infinity, extrapolating those figures with a traditional fighting game engine and we'd be in for trouble.
graFighters isn't just a fighting game, and that isn't meant to be a sly against fighting games - the truth is, graFighters does a bit of a bunch of different genres; There's fighting, but then there's also strategy, there's also social networking in a sense, and there's also drawing. It's not "a fighting game" or "a strategy game", but saying that it's a fighting game is the easiest way to explain it to the largest audience in the least amount of words.
At the same time, I don't think graFighters would be against that either. If you were looking to be a legitimate investor, I can't imagine graFighters would turn you down if the offer was right. Kick Starter is just something else on top of it all.