Not really, all the characters in 1 are in 2. It's not like Samurai Shodown where some characters got dropped along the way.
The bandaged head guy was not wearing his bandages though! I think he's some sort of zombie in 2, while he was still alive in 1. But don't quote me on that.
That's not true, you have only awakened Kaede in LB2.
Not to mention you'd be missing on single best Neo-Geo background if you'd skip LB1: