Better Than Canon: Many of the battles are much better than their Anime/Manga counterparts.
In the Sasuke and Sai arc, Naruto and Sasuke actually FIGHT. Naruto, contrary to the indecisiveness he displays in canon, goes tooth and nail against his old friend.
Gaara's battle with Deidara in particular was magnificently expanded. Halfway through the fight, Deidara realizes he may have bitten off a bit more than he could chew in singlehandely assaulting the goddamn Kazekage and tries to book. Gaara ishaving none of that shit.
Game-Breaker: The Rasengan and Chidori. For a fourth or so of your quickly recharging chakra bar, you can quickly go through shuriken, chakra shuriken, any item, chakra dashes, and comboing for good damage. And a short cutscene plays after you make contact, so no substituting after the first hit. In other words, if you try anything that's not guaranteed to hit anywhere near a user of either of these jutsus, you're going to get hit. If you finally do hit the enemy, they can just substitute and use it immediately. Few things in the game can be canceled into that are both quick enough to hit the enemy before they hit you and will not be beaten by the Rasengan/Chidori's ridiculous priority.
This is why Sage Naruto is the most played character in the game online. His version of Rasengan, RasenganBarrage, is even faster than a normal Rasengan or Chidori and is perhaps the fastest jutsu in the game. His Ultimate Jutsu, a thrown Futon: Rasenshuriken, cuts through almost everything in the game and curves slightly. His chakra shuriken is not one, but two Fuma Shuriken that beat other chakra shuriken and deal good damage for shuriken. His grab, which also have cutscenes, sends out a clone that, like most grabs, have ridiculous priority; if you do hit him, you still might be grabbed. Oh yeah, if by some display of serious skill or sheer luck, you get his health down low enough, he can activate his Awakening. His awakening is his Six-Tailed Mini-Kyuubi form. He hits hard. His jutsu is now the Chakra Gun Volley. Three rapid fire guard-breaking chakra shotsthat can hit you while you're on the ground. It easily can be timed to hit you as soon as you get back on your feet. Good luck.
Sage Naruto may be the most obvious, but there are plenty other gamebreakers in the game itself, to the point it utterly imbalances the game. The short list includes Sasuke(Kirin), Itachi, Deidara, Minato, Kiba, Hinata, Pain, Konan, Sasori, Shikamaru...
That One Boss: Kakazu and the final phase of the Pain battle. Kakazu's third form is held in one place, but that place can't be reached by any ground attacks, and trying to close in leaves you open to get punished by his extremely damaging attacks, he also has a Wave Motion Gun that's really hard to dodge.
As for Pain, in the final phase of his fight, Naruto's used up all of his chakra and has lost sage mode, returning him to the most basic Naruto, Pain, meanwhile, has infinite chakra and is in awakening, which gives him increased damage and infinite chances for substitutions.
That One Sidequest: Seemingly averted deliberately with the hide-and-seek sidequest being made much easier from the first game. Then there's Grandpa Gen sidequest, which is difficult due to the Computer being a cheating bastard.
They Wasted a Perfectly Good Plot: Hinata's ultimate Tear Jerker moment and one of the most memorable moments in the entire canon series, the scene where she tries to save Naruto from Pain, confessing her love for him in the process, gets reduced to an almost blink-and-you'll-miss-it moment. In fact, Hinata doesn't even get to finish her love confession!
To be fair, that moment was extremely hard to pull off in a fighting game, and right in the middle of a boss fight at that. But still...
Uncanny Valley: Someone on the development team had the novel idea to have someone from the the studio that produces the anime draw the hand-drawn backgrounds in "Ultimate Adventure Mode". Which don't mesh very well with the digitized character models.