I say give people the choice at character creation. "What do you want to play as? Fully dressed man? Fully dressed woman? Stripper? Zed from Zardoz? Crossdresser? Female crossdresser?"
Admit it; seeing a buff axe-wielding Dwarf in a pink lace dress would make your day. If you disagree, here is a picture of Sean Connery in a wedding dress: http://pics.blameitonthevoices.com/092011/small_sean%20connery%20wedding%20dress.jpg
I'm not sure if someone has already brought this up or not (because hey, nine pages), but: the cosmetic armour system Shamus is talking about from LOTRO is already in Tera (and has been the whole time, as far as I know). You have costume slots and you have dyes. I don't know how varied the options are, though, I only played for a little bit of open beta and haven't bought the game. (Although one thing I did try that works in LOTRO but sadly not in Tera: you can't convert a regular armour piece to a costume piece, at least not directly in the equip UI. Maybe there's a vendor for that though.)
Yay for Guild Wars 2 and their genius fix to this problem. A cash shop item that takes the stats from one piece of armor and puts it on the piece you want. You're still only wearing one set of armor, unlike in LotR:O, but it just has modified stats.
They make money and people get what they want. ArenaNet FTW. :3
I realize this is an old topic, but the Phantasy Star Online series has been doing this right for years, and they haven't made you pay any real money to do it; aesthetics are separate from armor. You pick what you want to look like, and armor makes very little difference in your appearance. Hell, what little visual effect armor does have can be toggled off from the item menu. It's really as complicated as this needs to be.
Of course, you're still at the mercy of the designers, and I really don't care for the outfits' aesthetics for the most part, partly because the outfits often cater to the billions of lolis running around, and on the non-robotic male side, it leans pretty strongly on the side of... uh, flamboyance. If you want to make a female that looks like an actual woman, or a male that doesn't look like a space clown, you're more or less fucked.
But, well, this is what the audience apparently wants. I'm just there because I too have gotten tired of cast times and cooldown timers; it actually plays like a game.