Regarding character design: I don't see borrowing certain elements from Touhou because our game has
parody elements. The source material is blatantly obvious and we're not trying to hide that fact. Honestly, the more obvious the parody is, the less we'd be accused of 'trying to be original but failing miserably', i'd think.
The only issue I have is with the names that are exactly taken from existing characters (i.e. Letty, Tenshi) that we should probably look into changing.
Regarding Embodiments: I am all for reducing programmer workload, but I wonder if there is another way? What if we standardized embodiments across each stage (so the character that pops up as an embodiment is superficial), and just included embodiments as a pool of sprites that the game can pull from when an embodiment appears?
If we make it randomized somehow, it wouldn't really be much a problem to include more embodiments because it'd essentially just adding a new sprite to the pool. And even if the pool is large, that would just mean that you'd see different embodiments on every playthrough, and have to play through multiple times to see them all.
Regarding Story/world development: I think all the races of Gensokyo are fair game. I am interested in keeping things simple though, and avoiding things like "Divine Celestial Yeti riding a bull, holding an eel and chicken in it's hands Warrior Eirei". I mean, It's ok to want your character to be cool, but you should have some kind of justification as to why they need to be X or Y, aside from "But it'd make my character the sweetest ever!" You can still be a Youkai or Human and be cool, look at over 90% of the Touhou cast.
As for race, I admit that I'm not sure where to go in terms of ideas. I was thinking the tsukumogami form of a writer's much-loved pencil, but is that stealing too much from Kogasa?
If we make the pencil purple, then this would be perfect. Stealing is bad, but parodies are great if done well. As long as we don't give the impression that we're slapping a new paint job on an existing ZUN trope and trying to pass it off as original, we can be liberal with the parodies.
And hey, that would mean we can make referential jokes in the dialog to add to the parody aspect. "Who in their right mind would use an eggplant-colored pencil anyway? At least if you were an umbrella you'd be a little more useful."