I'm sorry, but saying that taking 34% more damage from specials is not a big enough difference is just wrong. The speed at which you can go in fact directly correlates as to how many specials you can use, and being able to use less in fact does slow you down and is a significant change in what strategy you would use per stage.
And that is not the only difference, enemies on Hard vs Normal are also 20% more likely to use their special moves, which also would make Hard different from Normal.
I completely agree with the points on difficulty. It makes little sense to cut them as there are clearly differences between each difficulty, and many people have spent a lot of time running normal already.
As for the retro characters, personally, I think they should also be separated per character, but at least separating them per game would make more sense than bunching them all together, as Shiva would be the only character in that category, and what is the point then?
And as far as the messy argument goes, I don't think that the websites design flaws should limit the amount of categories this game has. Let there be all the categories and for people to be able to submit what they want.
And as a final thing, this is not a hot and big speedgame guys, the arbitrary restrictions are only gonna cut down on the already relatively small number of runs this game will get. Why limit it? Open it up and let people have fun.