A really good idea, and this could get Super Mechs to be more played. But this shouldn't mean that the mute button should be deleted. A spammer has no reason to be reported, he/she should just be muted.
And, for the report form, I suggest that, above or aside the chat, a button that could look like this (

) was there, and it opened a in-game window with the following things, and in that order:
-Bar with title: Player to report
-Selecting bar with title: Category of reason*
-Big bar with title: Reason to report
-Button that says: REPORT
*Optional, this means that it doesn't have to be necessarily answered