Lord of the Rings online has something very advanced in this area:
You have a "Costume" set of slots, identical to your armor slots. You can put the "style" and "color" of any armor piece (and special apperal items) into each slot. If enabeled, the slot value will overwrite how te worn armor looks.
You can wear a heavy armor and still look like wearing a Flower dress.
I thik you needed to "bind" items to use thier style. But this is a no brainer for previosu equipment anyway.
The function is disabeled in PvP however, to allow proper identification of worn armor from visuals. Not sure that would be needed here (with stuff like Bound Armor already hiding the real style).

The second best I saw is propably SWTOR. Thier modable, adaptable gear allows you to choose almost "any look you want" while staying 100% compettitive. Just a bit expensive to get mods out of Commendation bought Items.
And the current crafting system is not designed to copy this easily.

played both lotr and swtor, and I'd like to see any of those implemented here in the future.

I'm sure they'll focus more on that when they eventually go F2P =P

I like this idea.

RIFT has a similar sounding system where they have "wardrobe" tabs that basically look identical to the regular gear/inventory paper doll. You can place actual items or "cosmetic" items in those wardrobe slots and then with a little checkbox decide which items' appearances will show, over-writing the stat-chosen fugly gear you don't want to see.

I think they even had ~mutliple~ wardrobe tabs so you could set up a "town" set of clothing and a "traveling" set of clothes and so on, all looking different.

As noted above, Bound Armor (and costumes) already hide our appearance in PvP so there seems little need to restrict it there.

Unfortunately, I imagine this kind of system would require a substantial investment in resources and hence likely won't ever happen.

Ok, I just realized how nonsensical that was... what I originally posted here, I mean. Ahem. Sorry.

A lot of games have this and it causes no problem with gameplay. I would love to see it. It would make wearing dresses more acceptable.

Agreed. I would like to see this more than dyes, though I would like to see both.

Yes, EQ2's was very good. I don't remember LoToR's, as i didn't play it very long.

DCUO's was good, as it kept track of any style that you had ever equipped and you could select any of those styles for your appearance whenever you wanted. Each body part was handled separately. You could also modify you color palate any time you wanted, without dyes.

I think that this has been suggested over and over again in the past, but...

+1. System seriously should've been in at launch.

RIFT had a great system. Firstly a very good dye system with 3 colour slots for each piece. Then in a similar way to what the OP was suggesting RIFT had an additional slot for each piece of gear.
Primary slot was the gear your stats went from, secondary was the actual visual appearance. You could mix / match / colour your outfit almost anyway you liked !