Ermac was added to UMK3 as a real character.
The kid's story in EGM is an obvious hoax if you read it today. He actually claims to have seen him TWICE. The first time he jumped down and gave clues and the second time(2 weeks later, iirc) he fought him. His story has all this goofy stuff, like Ermac supposedly taunting him and his name being in the lifebar, all kinds of stuff that's clearly not in the game. What he described was no "glitch".
The interview where he was "confirmed" was by Ed Boon and Roger Sharpe and was in Gamepro. It's true he said it was real, but he also was extremely vague and anything Boon says(especially about game secrets) should be taken with a grain of salt. I mean, he also hinted it could be in MK II. Either way, the EGM article and the Boon article contradict each other. At least one of them is lying.
There IS something in the game called "ermacs". It's listed in the audits menu. I'm pretty sure it's just some kind of log for errors and not a red ninja. Whatever it is it has to do with the hardware because it's in other games that use it, like Smash TV, and was removed when they made the switch to T-Unit harware.
Keep in mind this is one of the most successful arcade games of all time and over a decade old now. In all this time nobody has been able to get a clear picture, provide any solid details or been able to reproduce it. Just how rare can it possibly be?
The game has also been taken apart countless times by hackers. As far as I know none of them have found anything to support him being in.