Man, I remember seeing this ages ago over on The Spriter's Resource. You're such a master at fitting forms like muscles into that limited space.
Nice job upscaling. Not perfect, but neither are the proportions of the original sprite.
As stated the arms a too small compared to the rest of the body. Other than that, great job.
Awesome idea... we should do a weekly challenge with this concept...
I pick up your gauntlet 
(oh and Greensart rocks! )
http://www.spriters-resource.com/community/showthread.php?tid=16458
JOIN WHILE YOU CAN?!
This technique is beautiful, and Ninja Gaiden one of my most-favourite-played games, so fav but; Can I use your technique, please ?
Damn that is so nice. His arms are a bit on the small side but I love the rendering.
Hmm for some reason I can only see the preview, not the full image, which is a shame cuz this loooks awesome!
I've already seen this on spriters-resource.com! Looks great though.
Sometimes I use this same method to enlarge an sprite.
And... amazing!
This is a badass concept! The fact you incorperated the colours and still made them work is awesome :)
However, I can't help but think that some stuff is off due to staying within the edges of the grid; the sword arm is quite short, the sword is weirdly cut off and I always thought that the 45 degree line on the face was representative of a 2-part head covering+bandana over the mouth.
To be absolutely nitpicky: it would have been nice to have representation of the pink everywhere the original sprite had it - a sword gleam maybe. I think that the neck, hand and foot clusters are fairly important (though I can see how you did it on the right for shading reasons). The feet especially get lost amongst the grid and Ryu's neck is meant to be bare, dammit >:I ;)
^That entire paragraph is of course ignoring that higher res depictions have a scarf and shoes and stuff, it's just alway fun to fill in old sprites' details :)
kudos!