A lot of fighting games have characters that by Canon are much stronger than their competition, but for some reason, hold back their power or some reason they are weakened in the story.
Akuma in all the Street Fighter games "holds back" his power to give his opponents a fair fight unless he is in his boss mode. Oro in the Street Fighter Three games ties one of his arms to make it harder for him to fight. Slayer in Guilty Gear is basically immortal and cannot be hurt (if I remember correctly) which is why you see him not hurt when he falls down and stuff. Jedah from darkstalkers can create a whole **** dimension with his power, but apparently he can lose. Pyron from the same game is a cosmic energy that is made of pure energy, but he is just a regular balanced character. Here is another funny one, in second impact, Sean is better than Ken in that game despite being an apprentice of Ken and being canon wise weaker.
In melty blood, characters that couldn't be destroyed besides under certain conditions like shiki's power or concept weapons still can lose against maids and little girls. Mortal Kombat vs DC with all that nonsense story (which I don't remember) of why superman can be hurt and stuff. All the marvel vs games are all over the place with this kind of thing too, but a lot of the characers from these games aren't fighting game originated characters. Even so, I think it is valid when considering backstory skills and abilities compared to their fighting game counterparts.
Maybe I am missing the point, but there are lots of times, where a character, who is stronger story wise, is not that way in the actual fighting game.