Kung Lao does seem to perform exceptionally well in events and consistently makes it to the top 8, and this is hard to argue with. You only need to look up the results to see it for yourself. Personally, I think he's in a good spot. While not necessarily S-tier, he's definitely above middle-tier, so in the A or top-tier range. The overall balance in MK1 seems to be in a great place at the moment. It feels like everyone has a fair chance of winning, no matter who they face. This is a marked shift from the MK11 and MKX days, where players would often rely on counter-picking, with the matchup chart playing a significant role in determining outcomes.
That's why it's common in MK1 pro events to see players sticking with one character throughout the entire set, only switching kameos if necessary. The kameo system seems to be working well in this regard, allowing players to focus on mastering their main character, rather than having to juggle the entire roster to stay competitive. Of course, any character could be improved in some way, but that doesn't mean they should be.
Overall, I genuinely think the game is in a great place right now.