I just made a color mod of the "small arena pac" Royal Rumble crowd. It was pretty easy just paste all crowd characters in one image, give it a 256 color palette and add the alpha channel, then cut and paste the images and save them as tm2. You can do it all directly in OPTPiX. It works.
This particular mod did not look too good though, so no screen shots this time. Point is that it was pretty easy.
By the way, since you have edited many arenas (mine has always been based off of that small RR arena) are there differences in the crowd textures?
The small RR arena only have 18 crowd textures, all with size of 64x32, are there differences in other pacs?