Illustrator has layers and sublayers, which I think makes it unnecessary to divide it into different projects. I'd try to do the whole thing. Have a characters layer and then have a sublayer for each character if you need to.
Since the font is pretty generic and the resolution on that pic is not the greatest, I think using a similiar font would be fine.
If no one else can produce better sources, I know of several gauntlet machines back home, and I'd be willing to take a trip to the arcade to photograph the sideart. However, I don't remember what the condition of the side art is and I won't be home for another 2 weeks. If you can wait, I'd go check it out.