Street Fighter 4 *is* coming. Capcom is not going to drop it, there is still a sizeable market for 2D fighting games--in Japanese arcades.

Capcom is taking so long because of all this competition. If they put out a 'real' new game that wasn't nearly as good as SF3, or even KOF or Guilty Gear, that would definitely kill the future of Street Fighter.

Rumour has it that Street Fighter 4 will be making an appearance in 2007.

As for the characters: Keep everyone, add more, make some more interesting additions to the game system. There we have the winner.