Whoa, serious issues here! Alright, since this is a scene creator rather than a game or movie with a beginning and end, I think the best thing to do is list the problems rather than put them in a paragraph:
1. Mute button doesn't work. Sorry to bitch, but it doesn't. It's not that hard to type in stopAllSounds(); so why not do it?
2. The graphics are incomplete. There are tons of weapons and objects from Madness Combat that are missing, especially in the melee weapons category. I understand sprite crowding is an issue, but that brings me to another problem...
3. The interface is awful. It might be nice to have some kind of display box pop up, rather than having to hold down keys and press and hold to resize or rotate objects. Even as it is, there are issues with layers, and I've found things to screw up while resizing. I think the _xscale and _yscale are disproportionate with each other while enlarging and shrinking items.
4. No reset button. Say I screw something up and want to start over. Well damn, do I have to wait through an advertisement all over again? Apparently so. This should be an easy fix, man.
5. Copied and pasted sprites. WHY?!?! The least obstructive and easiest-to-use system for a scene creator would be to have a list of all of the sprites as buttons, possibly a scrollable list, and then have those buttons spawn your objects through linkage. This would reduce lag, make navigation easier, reduce crowding on the background, and it would make everything look much more elegant. It would also be great for deleting objects from the screen if they were resized wrong or something. Really, I can't recommend this enough.
6. Twitch-reflex rotation. Why do you have to just time your clicks to get your rotation how you want it? If objects had a pop-up window when you clicked on them, you could manually type in a rotation between 0 and 360 to make scene creating much, much easier!
I don't know how well tuned your ActionScript skills are, but if I were you I would look at the level editor in Happy Wheels or Crush the Castle and try to mimic those, as they have very pretty and easy-to-use interfaces.
Some terms to look up: getNextHighestDepth, getDepth, loadSound, useHandCursor, attachMovieClip, stopAllSounds.