I wouldn't say any of the Naruto games are above average fighting games, but Naruto 2 for GCN is the best Naruto game and probably the best anime-based fighting game I've ever played. Still doesn't hold a candle to any real fighting game though.
Also, a sequel to the PS2 Narultimate Hero is due out this Fall. No word on Naruto 3 for GCN, but with the popularity of the series rising and a movie due out in a couple months, it would seem to be a no brainer.
Last... the ONLY reason (IMO) to play the PS2 Naruto game (the first one, not the sequel) is if you don't own a GCN. Naruto 2 is leagues better than the PS2 Naruto game. I got the PS2 game first and thought it was about as good as DBZ Budokai 1 and 2 (which isn't that good). Then I got the GCN Naruto 2 and it completely blew the PS2 game out of the water. No comparison at all. But still a ways to go before it actually gets up to real fighting game status.