The big issue is there is no sense of unity with the various design elements (logo, character art, or joystick/button outlines). As a result, everything clashes and it makes for a messy looking layout.
If I was me, my first choice would be to just ditch the character art altogether. It doesn't tie into any other design elements and covering up the various characters doesn't look good. I would also try other designs for the button borders to see if it's possible to tie in better to the Marvel vs Capcom logo.
Second choice would be to ditch the Marvel vs Capcom logo, and fade the character art (like the logo), and try to rework the character boxes to avoid having so many covered up and in particular being 'decapitated' by the button/joytick art (i.e. Collusus, Wolverine, etc).
Third choice (if you want both character art and logo) would be to shrink the Marvel vs Capcom logo until it doesn't overlap the characters, then fade the character art so it looks on the same "plane" as the logo. The way it is now, it looks too messy with everything overlapping the way it does.