Personally, I find it pretty hard to get very "immersed" in an MMO. Something about seeing a name akin to xxSniperKiller371xx over the head of the most ridiculous looking character a given player could come up with, as they're bunny hopping through town kind of kills "muh immersion."
Then there are things like being able to duel in the middle of a major city as a Mag Sorc with 2 Daedric pets, while polymorphed into a goblin, against an opponent who's polymorphed into a Dremora, and not a single NPC caring about it. But heaven forbid you want to vendor some stuff while being a Stage 4 Vampire (even if a costume completely covers your appearance), or you accidentally bump the wrong Necromancer or Vampire related key bind. 'Course, I got a cheery, "Welcome to the Bank of Daggerfall!" line immediately after having a bunch of different merchants tell me what a horrible monster I was, and refusing to do any business.
To me, this sort of mechanic is just annoying tedium, not immersive roleplay. It's cool if some players enjoy it and want to leave it turned on, but I'd really prefer that it were optional.