If you're enjoying DOA Ultimate, then definately pick up DOA 3. It's cheap now, anyway.
For unlocking the 3rd secret character, you need to beat Arcade mode with every character in the game. The easiest way to do this is to run through the game on easy.
Then, you can hit Survival mode. That'll keep you busy for awhile. You can save a lot of time in that by co-ordinating good tag teams and playing through until you unlock a character's 'rare item'. Once you have that, switch that player out for one you haven't gotten the rare item for. Keep doing this until you've gotten the first 50 items on page one. One of the items requires you to have 50 straight wins with one character/tag-team......then you open up page 2, which is much easier to finish off. Collecting all the items in Survival mode unlocks everything - every costume, etc.