If it's for your own personal use, I don't think there's anything wrong with that at all. MUGEN is meant to be customized per an individual's personal preferences. The only issue is if you were to share the character with others, without the original creator's permission to share.
Now if you want to show off your work on say youtube for others to see, I don't know if that's considered wrong or not in the MUGEN community. Just keep that in mind. Maybe others will know about that.
As for being possible, yea, you should be able to edit him easily if it's just a head swap. If you've never edited character sprites in MUGEN before, then you'll have to push through that learning curve, of course.