What concepts do ya need for the hadoken? :3
That's your problem. :3
I would tend to expect something like Energy-Ki-Projection or Attack-Range-Energy, but anything that makes sense will work.
I wouldn't play Tainted. :3 Heroes are where it's at, son. Anyway, I'll offer up my opinions to try and get the ball rolling here.
Tainted can theoretically be heroes, at least for a while.
Setting: Nothing wrong with that. Maybe elaborate a little more on what a Tainted is and how they differ compared to everything else, but I think perhaps the best way to go is no matter what/how many races you use I would give them only 1 bonus in something and 1 penalty in something. Easier to keep track of that way. Like, let's take the DF version of goblins. They're hateful little bastards so maybe they start off with some offensive skill but are barred from using a positive Concept like Love or Growth - along those lines anyway.
I do intend to go into more detail, that was just the quick version.
Wasn't giving much thought to races, to be honest, partially because there are no stats except HP at the moment. Tainted are sort of a template in that regard, but still don't have any constant, all-the-time bonuses or penalties until they mutate. I assumed anything unusual, like a vampire, would just have a special power or two to it and couldn't also be a Tainted.
Also, note that Concepts are completely arbitrary and personal, so defining them as positive or negative could get tricky. If your definition of Love is savagely murdering something so no one else can have it, well, that's your definition of Love. It's not likely to be a good healing spell component, but it'll work for something.
Perhaps instead of being separate, Tainted could just be a template you lay on top of your race that further increases their bonus and penalty? Going back to the goblin example, maybe they would start out with an additional offensive skill or just 1 strong one, but they are barred from an additional Concept for magic. Also, how do mutations work? Are they purely RP, will there be a random chance they will be positive or negative, or since the end result is a horror are they always negative?
Mutations are a result of overshooting too much, and result in getting better at whatever you overshot as. They're always beneficial except for two issues. First of all, they tend to be rather noticeably inhuman, so you'll have some RP trouble. Secondly, they help you become a slavering horror quicker.
Skill Points: Skill points sounds nice, personally. I've always had difficulty trying to figure out what the difference between a success, a critical success, and a meager success should be, and giving out skill points is a good way to differentiate. So while I'm for this idea, may I suggest an alternate one for discussion's sake? How about skill points, instead of applying specifically to a skill, are deposited into a pool, which has a cap based on your level/skill level/whatever you want to term it. A player can apply one of these to any roll in advance to keep from a critical failure; like if I was jumping from one roof to another and I had three points in reserve, I could apply one. My roll comes up: if it's a four, I don't get another point because the original roll isn't a five or six; if it's a one, then it gets adjusted up a regular failure. Maybe I grab the edge and will fall if I can't keep my grip, and someone could help me over. So I apply another of my three points to holding on until someone gets there, etc.
Something like this occurred to me, but I wanted permanent advancement too.
Melee Combat: I like the idea of being able to try situational attacks, but it may be best to keep it loose and go with the flow on those. Special moves/finishers/fatalities are a nice way to flesh out combat, and going back to my skill points suggestion maybe you could do something with that... like, if I have three points as in the example above and I want to dash past a generic mook bandit and slit his throat in one ninja-like move, you'd say I have to spend two of my points and get no bonuses. I spend the two points and roll a 3, a meager success, so I hit a major vein. He'll bleed out soon, but he's not dead yet and can still act for let's say two turns, with increasing penalties. So on and so forth.
Under the current system, that sort of thing would probably just be a regular attack, granting a "Mobile Throat Cutting" skill point or similar if you succeeded quite well. Then you could combine that with other things to get an actual move that dealt extra damage to mooks or something.
The power/effectiveness of special moves, whether actual purchased ones or "I cut off his hands," would likely depend on what you were fighting. Trying to trip a dragon probably wouldn't really do anything, whereas trying to trip a worthless mook might very well send him careening into a few of his friends. In general I'd like to avoid crippling already worthless enemies with penalties every time you attack them, but I might allow forgoing/reducing damage for other effects without a special skill for it.
A little further down you mention attack and defense stats, along with HP. I always like HP because it feels less arbitrary to say 'you lost your last three hit points' than to say 'the flail crushes your head, you die instantly;' it may be less realistic but I just prefer having a way to gauge how much danger I'm in and when I should run. This thought may be only somewhat related but perhaps you could raise these stats in relation to combat this way: let's say you roll attack of five+one and the enemy rolls defense of three, I get two points towards my attack EXP and when that hits the set amount it becomes Attack LV 2. On the flip side, I roll a defense of three+five and the enemy rolls an attack of four+three. I defend the attack due to my higher roll but I don't get any EXP because my unadjusted roll was lower.
I've certainly been thinking about something like that, but there's a couple issues involved. First off, I'd like to avoid massive bonuses to the roll, so Attack or Defense would probably have to be affecting damage or something instead of to-hit or dodge. Secondly, I'm not entirely sure what to do with said values; I don't like straight subtraction either. Third, I'm wondering if dealing with larger values should grant experience faster, especially since that'd avoid too much grinding of combat stats on random villagers. But on the other hand, rewarding the same amount each time or some fraction thereof would at least mean a player's stats would reflect what they spend all their turns doing.
And for HP, maybe for every set amount you lose your cap increases? Like, for every five HP you lose and survive the battle you get an extra HP added to your maximum? That probably wouldn't work out to well but it's an idea.
I definitely thought about something like that; specifically, the notion that characters that are good at avoiding getting hit aren't good at taking the hits that get through. As with you, though, I'm not entirely certain how that'd work out.
Magic: It does seem a little complex at the moment but it's also cool because that level of complexity can also give you a lot of freedom if you're creative in your casting. I would suggest adding a few generic spells like Fireball and Healing as examples of how concepts can be combined so it's easier to understand the system, but other than that I don't see anything wrong with trying it out.
Already done with Hadouken, kind of. There's a lot of different possible answers, but Fireball could be something like Projectile-Heat-Shaping or Blast-Flame-Burst. Healing might be Repair-Body-Life, Love-Virtue-Patience, Regrowth-Stamina-Perseverance, or even Heal-Other-Touch.
something based on exponents, logarithms, and factorials would be nice.
...I'm sort of a fan of triangle numbers, factorials' addition equivalent. So, that's actually sort of likely.