There are a HUGE amount of utilities available for hacking almost every imaginable thing in the Sonic 2 ROM at this point. Which ones you use are up to you, but here are my personal opinions on them all.
SonED - Stealth (Site Down)
Since SonED is now freeware, there is nothing stopping you from using this great level editor. Use it. I prefer the DOS one for it's speed, but the Windows port is better if you've got processor power to burn.
Chaos - Brett Kosinski (Site Down)
Chaos was the universal editor most used to get into level editing. Sonic 2Z was originally done in Chaos, as were quite a few other ROM projects. Chaos allows you to edit the tile layout in the main levels of Sonic 2, but it will not edit objects (hence why Casino Night in Sonic 2Z has some weird layout schemes, I had to get around the annoying tags). Becasue of the restriction of not being able to use objects, this editor is obviously outdated by the freeware release of SonED.
Sonic Hacking WizPro - Gerbil (Site Down)
Like it or hate it, this program is pretty much essential for all those simple things, like palette editing and editing the level select text. This program does all of those stupid things very easily, saving the time of loading a hex editor and doing it the hard way. This program should be picked up by any ROM hacker, for anything from a serious project to messing around, as it's easy to use and just useful for all sorts of random things.
Sonic 2 Title Card Editor - Gerbil (Site Down)
This program, although glitchy, is one of the more sought after little .exe files around here. Basically, all this program does is edit the title cards to the stages, nothing more. The instant you try editing the title cards to Aquatic Ruins and Sky Chase, though, you'll understand why I said it was glitchy, however. There are MANY quirks to this program, but it DOES work if you keep at it enough. I used it for Sonic 2Z, and yes, I WAS quite annoyed with it. (There is a VERY specific reason my title for Wing Fortress Zone starts with A, and it's not because I like that letter =P)
Sonic 2 Display Editor - Saxman (Site Down)
This program is a very effective way of editing the on screen display to Sonic 2. No glitches that I know of, and it's quite a nice little program. There is one major quirk to this, though. There is a VERY good reason why SEGA made the display the way it is: It works. A lot of people seem to be changing the display just because they can. Don't. This is a cool little program, and it's very well done, but this should be a "Mess with it, then never touch it again" program, as it's just not necessary to change the OSD in every hack on Sonic 2. I messed with it, then it stayed on my hard drive. I won't touch it again unless I'm very bored. I suggest you do the same.