Use normal character hitting but with lower friction. This will make it a bit bouncier (or at least seem bouncier) and make the arc more realistic.
Adjusting the bounciness is easy- there's a variable for it. And the characters already fly in realistic, parabolic arcs- they just stop after a certain amount of time so the player can retake control.
Nah, the timer should stop after it's hit, making it explode on terrain contact only. That would create some really frantic situations when players juggle a bomb between them for several seconds
This creates problems for attacks that have downwards knockback, or low knockback, which just cause the bombs to explode.
And as appealing as the bomb juggle may be, it really doesn't work. It would require two characters to have an attack with the same knockback (in other words, the same attack), and be in the perfect positions. This is a situation that never comes up- the bomb usually just ends up flying over someone's head.
Also I think the predefined arc is a good idea.
It looks really, really bad with some attacks. For example, think about how it would look if hit with Nikujin's head stab, Naija's flipper sweep, GK's returning stick boomerang, or Turner's falling kick.