Over breakfast (and over the couple days of a rather vile little bug) I've been watching video reviews of some of the more well-known video game series. Fallout, for instance. And of course Mass Effect.
I admire the cleverness in working in a vaguely in-universe reason for you to be able to customize your character. (Puts me in mind of a long-forgotten Infocom game that determined your avatar's gender by which bathroom door you went in). In Mass Effect, the conceit is a battle damaged computer and you are "helping it" rebuild the personnel files on Commander Shepard. On Fallout 3, the mechanism is played for hilarity with (among other things) the ridiculous "aptitude test" which may or may not sink points into various skill slots (unless you chose to talk to the teacher afterwards, in which case you are allowed to edit the results).
I'm familiar with the discussion. The idea that being able to customize the character makes it easier for you to identify with them. Funny thing, though, this doesn't seem to be a problem in literature (and the odd experiment aside, it is generally accepted that the reader identifies strongly with third person, and self-identifies with first person if the first-person narration is not too obvious.)
A better argument is because the default character seems so often to be a white male, being able to customize is a way of making the game experience more inviting to those who would not chose to describe themselves in that way.
One problem is that the choice is very much cosmetic. There are some dialog changes that happen if you are female instead of male, but the universe doesn't seem to care if you have a beard or not. And, well, I can't speak to the kind of society the universe of Mass Effect may have, and perhaps they truly are color-blind. And I haven't played it enough to know if there are character generation choices beyond "surliness" that also show up in the dialog tree. If for instance being a "lone survivor" triggers different reactions among people than being a "war hero."
I'd be surprised if these changes went further than a few dialog tracks, however. Which is enough work already; the word is "tree" because each choice multiplies. If it mattered that you were a bearded spacer versus a smooth-faced female war hero, the voice team would need to record, process, and cut animation to 8 different choices for every line of dialog. Having one mission offered only to Shepards who were bald, though, would mean months of dev team building levels that most players would never see. And that's not real likely.
So I question the utility. The situations, and the reactions, the are part of the story of Half-Life happen because Freeman is a young physicist with an interest in physical fitness. That mix puts him at the Resonance Cascade in an HEV suit, and makes believable the interest in him from Black Mesa East twenty years later, and his ability to survive everything the Combine throws at him, and that shared history ties him to Eli and Alyx and even Magnusson. You would not get this (relative) richness without the specific flavorings of that character.
Well, maybe. I could say this is even more the case for, say, Bioshock -- you have to be one specific individual, because that's a key plot point. But in all honesty I can imagine how the presented dialog and NPC interactions and back-story would work if Freeman was a scrawny Jewish undergrad instead of his buff goyim post-doc self.
And that's kind of what those of us who are out of the assumed norm do anyway; create head canon for our favorite characters in which their internal life is rather more (and often different) than what is presented on the page.
Be that as it may, it doesn't seem to have turned off any gamers to find they are the (female) Chell of the Portal series. And they don't even have the excuse of the Tomb Raider series, where "being" Lara is possibly of secondary import to being behind Lara for most of the game. Chell is by contrast not seen (unless you make an effort to form portals that allow you to glimpse yourself).
Also worth noting that Chell's gender isn't important to the game. The only place where gender roles even possibly come in is when Glad-OS tries out a few insults based on stereotypical concerns; Chell's weight and (possible lack of) fashion sense. But even Glad-OS gives that up in boredom after a few funny jabs ("Look at you, soaring through the sky like an eagle...piloting a blimp.") Otherwise, her gender is a refreshing non-issue.
So perhaps what we need is not the option for a Femshep, or different beard colors, but fully-defined characters who aren't always white males. Characters who are integrated into a universe and have relationships with other characters in ways that reflect their backgrounds. Characters who offer the experience of being female in a traditionally male environment -- or female in an accepting multi-gender environment. Or a person of a unique culture (real or imaginary) which is experienced from inside during the course of the game.
The usual argument is that most gamers are white middle class guys. Which is true, but only by a few percentage points. And when this is pointed at, the next argument is that most gamers are perfectly happy with an avatar who is also either a white middle class guy, or someone said guy would feel comfortable hanging with. The usual "people keep buying the games, so why should we change anything?"
And the committee-driven, conglomerate-owned, expensive-investment world of major gaming properties is probably going to be stuck in this rut for some time yet. If we want to see more games in which not just the avatar character, but the very gaming experience, offers something other than, "You are Colonel Joe Smith of the Space Marines, now go out and kill some purple guys with spikes on their heads," it is going to come from the independent games.