There are different ways to fix Mugen character error, depending on how you got it. The first thing you should do is to update your video card driver, as an outdated driver can cause a lot of issues with your computer. If that doesn’t fix the problem, try reinstalling the game.
A lot of the characters in the game are stolen from other games, and a lot of the characters are just recolors of other characters. If you have a character that goes all purple and disappears during a battle, that’s probably because the character you’re using is a recolor of another character.