^Yeah, that looks a lot better. If you feel like upgrading more, here's some stuff that can be tweaked:
The nose looks a little weird. Try to make it rounder, if you can.
Also, I think Mario is taller than Sonic, though if you make him taller he might look worse.
But that's just small stuff. Other than that, this looks really good.
Oh, interesting thought, that skinnier version of Mario can probably be edited to look like Luigi.