Instructions
Download a life bar that you like. These can be found on most websites that offer Mugen character and stage downloads, such as Mugen Free For All (see Resources). These files usually come in RAR and ZIP, which can be opened by right-clicking the file and selecting "Extract Files."
Extract the files to a folder in the Data folder for Mugen.
Open the file called System.def with a text editor such as Notepad.
Scroll down to the line that says "[Files]," and there will be a line that reads "fight = fight.def". Edit this line so that the name of the folder containing your new life bar is before "fight.def" with a "/". For example, if your life bar is in a folder called "NewBar", the line should now read "fight = NewBar/fight.def".
Save the changes to the text file.