I make my characters look like how I ideally would want to look. Elf ears, brightly colored hair (all depending on what options are available, if I can go with blue, I will go with blue), pretty tattoos, fangs, etc. It all comes down to what the options are, really...
I always make a character that doesn't look like me, I don't really like immersing with video games. The only kind of customized character that even remotely looks like me is my Mii, that's it..
I don't. Oddly enough, I find having someone who looks like me and whatnot only breaks the immersion. I suppose because it makes the experience more obviously fake.