Radrappy, I can walk though my town and see a vast number of people wearing some seriously stupid things... The goths, the emos, the chavs, the big fat mothers in jogging pants, the skanky mini skirts, the summer dress, the winter jacket/mitten combo, fur coats, steel tip boots, sandals, high heels, trainers.
It would be less realistic if they all stuck to similar dress code. People express themselves in the game just like they do in real life... The reason you'll see someone dressed as a pink frilly girl or a badass ninja is because on the other end of that character there is a real person that wants to enjoy the game and is expressing their own personality though the character. Restricting that only means you're restricting peoples creativity.
Finally, PSO or any MMO for that matter is never going to have an immersive world... There are to many people walking around talking as if it is a game, asking for NAKED PIX PLOX and all sorts... If you want immersive, play an offline RPG.