Too fragile
There's a difference between challenging and mind numbing. A mech who can only take four hits against an enemy who shoots as often as bosses in Raiden is a game that requires mind numbing practice to win. It's something I'd put out for a console game or one with more rewards for winning, not a flash game.
Aside from that, the sword was a very weak weapon. Getting that close to anything was absolutely lethal when the gun was just as powerful but with full range. It would have been better if instead of having the mouse fire the weapon and z/x choose weapons, z had fired the gun and x had swung the sword. Dynamic combat is always superior to a clunky system like that.
The graphics were awesome, the style is classic, just tone down the difficulty (maybe an easy/medium/hard mode selector) and it's an awesome game.