I was watching some videos about character creation, in one of them someone would say: "In Oblivion everyone looked like they had down syndrome, in skyrim they look like drug addicts". (and that is for several reasons, one of them are the textures). I'm still shocked by how hard is to make a male character that does not look weird in mass effect. Actually if you look at the videos you will find most of them are about weird characters, as opposed to other games.
Character creation is not really good in most games for two main reasons: one is that it is complex to make something with variables that can be animated after, it's not like a picture, it has to move in a natural way. The second one is the uncanny valley http://en.wikipedia.org/wiki/Uncanny_valley for this, cartoony characters (as in the sims) look less weird than realistic (but failing) characters in other games.
However, there are some games that have really good character creation engines, I hope they would provide them for other developers, in a similar way to what cryo does with their graphics engine (and map creation and all that stuff). Two of them are APB and eve online. Moreover, if several games used the same engine then characters created for one game could be imported to others, and used as a base to modify (or leave it as it is).
Character creation could be really cool (APB and Eve prove it) but most of the times it is deeply disappointing.