Thanks Andar.
My problem with doing the pretend to let them make skills from a predetermined list is that with even only a few options for modifications the number of combinations scale up quite quickly and would require creating quite a lot of skills.
Isn't it possible to create some sort of balancing in the skill creation to where you can specify limitations in how skills will end up? My general idea is to make it sort of a collection game where you can keep creating more skills to fight with, with some more rare chances added in for variety.
I agree, it does scale rapidly - which is why usually only big studios try something like this.
To your second point, yes, that is possible and done more often. Basically you got a list of "attributes" for the skills, each attribute has an effect and a point cost and the player can only create skills up to a point cost determined by level, chapter number or whatever.
However, doing such a thing is easier with items than with skills - if your main point is the collection, you might consider doing this with items (as there are several script available that will help with it) instead of skills.
Using dynamic skills is more difficult than using dynamic items, and if this is your first game you should consider going the item route until you've more experience with creating such a game.
You should also read what I put together at the link in my signature if this is your first real project.