[Apollo]

Since I read the setup of 'shadow of the beast" days ago:
I would go for a dual-playfield setup. Yep, this reduces the number of colors but gives you more freedom with the parallax scrolling. I think the parallax scrolling is an immense part of the game experience.Together with the gfx artists I would try to make as much 'copper magic' as possible regarding change of color registers.
The 'status' bars at the top and bottom of the display would be just plain bitmaps (maybe with a reduced depth of 4 instead of 5 bitplanes). The in-game graphics (the scrolling gameplay you mentioned) would be created by 16x16 or 32x32 tiles with the possibility of 'animated' tiles (=> 'redrawing' a certain tile). But: the size of the scrolling gameplay isn't dividable by 16 or 32, I wonder which size the tiles have on the arcade hardware. This is not a problem, of course. I thought that one would go for an width which is a multiple of the tile-size.
All other objects would be blitted with the exception of the player and his weapon which could be hardware sprites.

But yes, dual-playfield could be a problem if you want to have a 'colorful' game.

And yes, I believe it could be done in full framespeed. And yes, the oldschool 512KB Chip + 512KB Fast setup should be enough for this.