On the issue of legal or not...

They will find anyone responsible, and they will take your money. Companies can do that. And if you think they can't do anything to you, because you "didn't know it was illegal", you will get screwed over anyway, because "ignorance is no excuse". You can't steal something, get caught and use "I didn't know it was illegal to steal" as an excuse. In this case, it's JUST like accepting stolen goods. Not worth it. And don't get complacent just because you're on a dial-up. That's the stupidest thing I've ever heard, they're not trying to get to your computer, they're getting to YOU, and they do that via your ISP.

Characters? Make entirely new ones. New names and everything. Do NOT base the characters on people from this community. You'll only start fights. If you put one character from this community into the game, you have to put them all. There are too many. So just come up with original ones.

I say UT. You don't need the power of a newer engine for such a game. UT will do just fine.

And if you get around to doing this, make it cel-shaded. Keep Jazz as much the way it is already as you can.