Paul Phoenix in Tekken. Bass in Dead Or Alive, Alex in Street Fighter, Ken in Street Fighter, Guile in Street Fighter... what do these characters have in common? Blond Hair, blue eyes and American. Also stupidity, crassness, laziness and obnoxious personalities. This is what Japan thinks of white people and americans. The list goes on and on and on. I honestly think americans just don't get it because they think Cloud, Goku, Naruto, Ash and all other anime characters are white.
When a culture keeps saying "this is you!" and then showing stupid people with no culture meant to be laughed at, and you clap your hands and go "hahahaha! This is awesome! I love it!"... there's something wrong with that. When you laugh along with people laughing with you, you are a good sport. When you laugh along with people laughing AT you, you have no dignity.
I can empathize with people feeling as though they are misrepresented a lot of times. And those people, like yourself, are free to vocalize that. But that doesn't mean everyone should feel some ingrained need to be offended. We're not a hive mind. Individual people can have individual thoughts and it doesn't mean we lack dignity. We simply just might not take some things that seriously.
I feel like your entire premise lives and dies on itself. You take issue with how westerners are portrayed in Japanese entertainment while at the same time admit that most westerners project themselves unto the "Japanese" main characters because they don't "get it". So your issue instantly becomes a non-issue because it's a matter of individual perspective (or the viewer defines the art). Also, quite frankly, who cares what Japan theoretically thinks of the west? My life doesn't change one bit either way.
This really. Saying we should be offended at "x" thing or we have no dignity is uh... weird.
Why is Cloud crossdressing transphobic? Short answer is: it isn't.
To reduce the complicated mess of gender dysphoria into something so inelegant as "man wearing women's clothing = trans" is to discredit a lot of the groundwork that has been laid out for growing acceptance of transgender individuals. The bit with Cloud crossdressing is not transphobic, because crossdressing in and of itself has no bearing at all on trans-ness. To borrow a phrase; it's not about your hardware, but the software in your heart. Cloud is male. Cloud is a man. Cloud finds himself in a weird situation where he does something outside of his comfort zone (dressing up as the opposite gender) in order to complete a task. Hilarity ensues because in comedy, often the best laughs stem from breaking social taboos and, still to this day, crossdressing is a pretty big one. It's cute. It's cheeky. It's humorous. The one thing that it is not is a commentary on trans individuals. In fact I'd venture to say it has nothing to do with transgender individuals. Crossdressing is its own thing.
As far as Barrett goes, that's a whole other can of worms. I'd like to see him remain unchanged because I liked the guy, but if Square caves to the wailing I won't blame them. It is, in the context of an American audience, a rather insensitive portrayal of a black man.