You know, this isn't bad.
Most NewGrounds users are bound to be hard on this game; At first glance, it doesn't look like much. The mechanics seem to be pretty good, but nothing exceptional. The graphics, mostly made up of Mega Man X scenery and a walking mushroom, aren't much to look at. The only sound is a "boing" noise. However, this idea has potential.
My suggestions are that you stylize the game. Give it a detailed, fully-realized main character, draw your own (your own) backgrounds and platforms, add some background music and more sound effects. You should make more elaborate animations for the Mushroom. More levels and an ending would be nice, as well. (By the way, you can remove the cursor all together - It's useless and crowds the screen.)
Overall, this game is surprisingly good. You've made a good, though unfinished, Flash that could easily grow into a nice little mini-game for NewGrounds fans. If you choose to continue its development, I'd say go for it.