In Two Player mode on the Normal or higher difficulty setting when you are down to no lives or are dead, press Start and choose to leave the game. Then, press Square to load your character and you will be back at full lives. Note: You will lose anything obtained since your last save, such as money, upgrades, etc.
To easily level up with the Wizard, go to the Imperial Palace level. Towards the end is a room with an unlimited amount of red beasts, and you must find the Magic Key in it. These beasts are easy to kill. Go in to the center of the room and repeatedly use the Path Of Sky attack (press X). The beasts will keep appearing, and you will continue to gain experience. Note: This works best with a controller with an auto-fire feature.