Look let's do this step by step...
When you'r at the menu go to Dragon Arena
Choose 1P vs COM
Choose you'r character
When your at the screen with all the computer characters you'll see that above there's Passwords, just press R1 or L1 to switch, then when you'r there, press start and simply enter the passwords...
here's my Vegeta, he's lvl 99...
@(G+YY DGKbj% FY%MMi PJCkIU M+ez@( FOSAv(
Good luck...
Sighs...