Well with graphics and sound I can't really help... As for AI theory... I've never cared about what theory says.
The point of the AI is, that it's supposed to do the same things a human player would do.
Detect if a fireball is thrown at him, so he can jump over it. Punch when you punch, so he doesn't get hurt, get away when you want to jump on him... Since this isn't a big game, these checks can be made in Draw Actor... The code asks the question, are there any fireballs comming? Then I should jump! etc... that's the logical way of building it up. I don't know the exact rules of the game, but I'd say you create a basic AI, then test how hard it is, and find its weakpoints. Then improve its actions based on that...