In a level that you've already finished, press Start to pause and then press Select to quit the level.

Start the game, enter any area and press Start to pause. Press Select 16 times to make a cursor appear on your number of lives. Then simultaneously hold A and B, and move the cursor box left or right. When you get the cursor over a number you wish to change, press Up or Down. If you put the cursor on the Wario face at the bottom left and un-pause, you'll get a better hat.