Mm, I was actually considering manufacturing specialized USB thumb drives that are read-only, since most people don't have CDs these days. That's unfortunately more expensive than a CD, but I think I might be able to manage with bulk.
As for the different levels, yeah, each with a new plane. The MXY-7 never saw flight from anything other than a bomber though, so each level would be pretty similar: Fly as a bomber, where you fire at attacking aircraft and dodge anti-air fire, and then fly as a glider for a minute where you have to dodge really fast anti-air patterns.
I think I'm gonna do this second. I like the space idea more, but this would be an interesting novelty game. I just don't have the money to really pay for music and graphics on something that's less likely to be profitable.