I think it'd be interesting if they used a refined equipment system seen in Soul Calibur II and III and the general Super Smash Bros. Style in that the controls are fairly simple and there can be multiple fighters on the field at once. Maybe not necessarily force a knockout as the only way of defeat, but it would definitely make for an interesting game.

And while we're at it, why not throw in more characters? Dragon Quest is a well-established series with a massive fanbase. That, plus characters from Vagrant Story, Seiken Densetsu, SaGa, Xenogears, and other Square-Enix series would make for a great game indeed.