Yes some of the normal moves are missing from it. But at least all the special moves are in there, with the cool sound effects when you make them.
Actually, I have analysed this game, and the palette setup is this: 16 colors are reserved for the background only, and the remaining 16 colors are only used for the characters. And in 2 player mode you can't choose the same characters (I think it was so in the arcade too). And every background has it's own 16 color palette, which varies from level to level, but the BOB palette always stays the same.
And in the Atari ST version they went for a shared 16 color palette for everything.
Here is a thread from 2016 where I made some GFX tests on this game.
http://eab.abime.net/showthread.php?t=84957
This is an interesting idea, although it could be very challenging to make the backgrounds look good in 8 colors, even with the help of copper. Although I think it could be possible.
But overlaying sprites with the characters to get extra colors would then mean that every animation frame would also need sprites in addition to the actual bob graphics. It can be done, but this would increse Chip RAM usage quite a lot.
But I think that the OCS version of Street Fighter 2 New Challengers actually uses dual playfield:
http://hol.abime.net/2216
Although I have looked at some gameplay videos, and I'm not 100% sure. Some levels look like 8+8 colors, but some seem to have more, although maybe those extra colors come from the copper.