The code has worked fine for me, no problems.
I just hold down all the buttons for the code (X+B+Z+start), as soon as I turn the power on (the first screen being the SEGA logo). If it doesn't work at first, I'll just hit reset, and again try holding all those buttons before I even hit reset, lol.
You'll know if it worked as soon as the scrolling text comes up. If it's the normal plot story, then it didn't work. If it's a better story, it worked.
Yeah I'm inclined to assume that the circular scaling moves ARE using the 32x hardware to really scale them. At least, I'd LIKE to assume that it's really using the extra hardware for those effects. It would suck to find out it's all just pre-rendered animations.
Also, yes I'm pretty sure I've never seen such scaling of hands and feet used in a fighting game, or any other game at all! I think the effect is great and shows off the added muscle of the 32x -- assuming it's real scaling effects, not just animations. Maybe the scaling attacks are the single most unique part of the game!
As for slowdown, I don't think it's really slowdown. I think it's a deliberate effect, like in Street Fighter II -- each hit that connects makes everything freeze for a split-second. It just makes it more dramatic, for every hit that connects. At least, that's my impression of it.