I prefer realism, with properly functional armor, as it aids immersion for me and helps me take my, and others' characters more seriously. We already have tons of RPGs with skimpy "protective" outfits for female characters. It's a trite design. We get it. Women have tits and skin. In the way of media, there's an abundance of erotica and pornography for that. I'd like media to tone down titillation.
However, that doesn't rule out doing what Neverwinter, and perhaps other games, do, which is that they allow characters to have a set of "casual" clothes, that they can switch to wearing, while simultaneously having a set of combat clothes equipped, whose stats are still in effect, even while casual clothes are displayed on the character. Non-combat clothes is a nice feature for roleplaying purposes, too.
