It's very likely this was suggested before. I'd also agree that actual quest problems or game mechanics should take priority over appearance options. However, I think character cusomization could be greatly enhanced with a pretty simple addition. It's worked well for other games.
I am suggesting that an additional slot should be added for a character's chest and head slots that would only effect the appearance of the character. No stats or other aspects of these appearance slots should apply to the character.
There are a lot of nice looking armors in the game that you simply never see on characters because they are found on less popular types of armor (padded armor, splint mail, half plate, etc). There's also a severe lack of head slot varieties at higher levels because everyone is wearing one of a select few helmets (minos). This change would drastically increase the customization options of a character without adding any new mechanics to change armor appearances, and would require no new artwork. Just find an armor/helm you like and drag it into the appearance slot.
edit: Everquest 2 has this mechanic in place, and while it is a subscription based MMO, they do have an in-game store similar to the DDO store where you can purchase appearance gear. They don't sell anything that directly affects gameplay, but they still have made quite a bit of profit from selling mostly appearance gear or other things to make aspects of their character unique. I think an addition such as this could end up paying for itself if some effort was put into adding appearance armor to the store (though I think an in-game dressing room feature would be important if more appearance options become available in the ddo store, I bought a haircut and hated it on my character, never would have bought it if I could have actually seen it on my character first)