Well this sucks. Looks like Killer Instinct is a digital only free-to-play micro-transaction based game. Hopefully by the time i get a XboxOne (this may be a long time) it'll be available on disc in full. 
I was a bit taken aback by that as well, until I read this:
http://kotaku.com/killer-instinct-on-xbox-one-is-free-for-your-first-cha-512655221Ken Lobb is involved, who was on the original KI team (did game design, character design, as well as voice work), and the man after which the Klobb in Goldeneye was named after. So, it sounds like it's getting the attention it needs.
Jago was my main back in arcades on KI2 anyways, so I'm glad he's the main character (and the gameplay video I saw, his sword move animation looks nigh identical to KI2).
I'm not too upset about having to pay for additional characters, as they are right, most people just play a few. KI1, I stuck with Orchid, KI2, Jago, MK1 Sub Zero, MK2 Kitana, MK3 Sindel, etc.
I consider them being true to the arcade, if friends want to play, they can throw down 50 cents to play a round and pick whomever they want. Though, in this instance, buy their character and play as many rounds as they want.
I mean, if Capcom gave me a free copy of say, Street Fighter V, and I could fight every opponent, but could only select Akuma/Gouki, I wouldn't complain too much, other than the fact I'd still like to have a box and manual I could scan
