Mugen is so unbalanced though.
That's an assumption. M.U.G.E.N. is simply an engine (Elecbyte even states that), it's up to you to turn it into a game. Hence why you can edit and customize anything. It's tedious, but he has done the hardest part for the end user (you)and made the foundation for a fighting game. Try asking ¢ap¢om to put those characters into a game and they never would, but you can. If you wanted to.
As I never answered your topic question, My team would be:
Nyarlethotep - Crawling Chaos (Persona 2: Innocent Sin)
KOS-MOS (Xenosaga 1 (3?))
Paavo (Alter Echo)
Since Nyarlethotep doesn't really have it's own form... It be interesting if when it used attacks it would become one of the fighters (sort of like Twelve in SF3 did) of the game for that attack (which would use most of the characters depending on how many there would be of course), and would be difficult to realisticly implement I'd have to say:
The Red Pyramid Thing - Sword (Silent Hill 2) instead.