I'm okay with 3/5 as long as it stays normal health. Largest health at 3/5 is just taxing and unbalanced.
I've discussed the smash thing on the side with you, but i'll reiterate hear. It creates an imbalance as one player will have the opportunity to select the stage more than the other. Plus, you have to figure out who goes first. In DOA4 I can see it not being as much of a problem, but DOA3 and DOA2's stages are heavily variant in terms of what characters have advantage in the level. It's just easier for all parties to agree on random select.
In comparison, Tekken 6, Soul Calibur, and Virtua Fighter all do random select and each have map environments that give advantage/disadvantage to certain matchups.