I would say that there needs to be a healthy balance. I think it's fine for some 'niche' options to exist, though they should not come at the expense of more traditional standards of beauty. Or even more average looking individuals.
In certain games, for example, immersion is very much ruined due to the uncanny valley effect of NPC design. Starfield is an excellent example, I'd say, due to how bizarre and ugly many of the generic NPC's walking around happen to be. Quite honestly, as a personal preference, I simply want to immerse myself in a cool fantasy world. I enjoy the classics. Tall, handsome men clad in shining armour as knights and city guards. Ruggedly handsome men in more worn, dirty armour as wandering mercenaries. Men and women prowling the streets with hoods to obscure their features and tight leather. I could list all sorts of timeless, popular character tropes but I would be here all evening!
On the other hand, I'm not hugely interested in having my character step into a town and every other NPC is designed to be exceedingly ugly, fat and with the demographic makeup of a modern day big city. Each to their own, I guess, though it simply is not to my personal tastes.
I also think that whilst it can certainly be fun to make crazy and strange looking characters in an expansive character creation, the novelty wears off rather quickly and those who do it tend to be streamers seeking to entertain their audience...whilst also showing little regard for immersion themselves.
