Alot of stuff needs to get fixed. perspective of background is completely wrong I would trash that, draw in perspective lines (google if u dont know how) and post again. Then I think people can help u fix mario before moving any further. Have u thought about what he is kicking? Or is he doing a john cleese silly walk?

I'm not very good at this but I made some tiny adjustments.

Can u make the backgrounds images larger and less repeated and be bolder with ur shapes to break it up instead of a single horizontal line?

I'm on my phone so ill just say that  from reading the game concept it sounds really interesting and leads me to think of other really cool rewards like submarines for exploring greater distances off the oxygen/power feed. Eventually perhaps drone subs which dont require oxygen feed but still need to recharge batteries. And subs need little arms and cargo bays, oxygen tanks, power cells, hull plating etc so...upgrades :-)
Some of this may conflict with ur other ideas, but not necessarily.
Will there be any combat?

Ok haven't posted anything in a while been so busy but started working on a running animation last couple of nights.
Used this Youtube video as a reference http://www.youtube.com/watch?v=USTO4-FAL_E
I know there is appearing and dissapearing details but I'm not going to detail it until I'm happy with the movement.
All feedback welcome - especially any advice on how to fix the head placement as it is jittering around at the moment and I'm going blind from staring at the frames >.<