Here's my strategy:
1: Teleport behind him. Preferably as he does an attack.
2: Do the flying move.
3: when you build up an X-ray attack, do that instead of the flying move.
4: Repeat as necessary.
If Khan blocks the flying attack, teleport away, or do a crouch block, because nine times outta ten, he'd go for the hammer to the shins move. Also, don't try and get too fancy, because me getting fancy usually ended up with a hammer in my shins and a spiked shoulder guard in my face.
I know it's cheap, but it worked. And for added motivation, Quan Chi is awesome.
As for the guy, I'd smack him until Shao Khan, Kintaro and Goro are released as free DLC for all, and they make Zeus from God of War available for the PS3 in a month as DLC. Not so much for the Shao Khan battle, but because that would be awesome.