I think so. Good character creators,  The Witcher 3, Stellar Blade, Dragon Age Inquisitions and FF14's character creator etc. All improved the game for me. I was more into getting cosmetics, in The case of The Witcher 3 even taking a loss in stats just to look good. 

The only time where I found this to not be the case was Savage raiding in FF14 as a tank where it's beneficial to choose the small race cause taking up less of the screen and more accurate precise placing in raid mechanics made it worth loosing out on style.

How would you react if everyone in FF7 r was made uglleir? If Joel was a hill Billy with missing teeth? If Geralt was as he is described in the books?

Irrelevant. I enjoy characters that have great style and design, and they don't need to be attractive to do that. When I see Kratos, I don't think he's handsome (really don't find the big muscled on esteroids guys attractive at all), bur he looks just AWESOME because he has great style and great outfits 

In action or adventure games it's to be expected the characters to be "hot" because they are at the peak of human physique, which means they need to be fit and with some muscles, but it doesn't really make the game any better imo 

For games where you MC is highly customizable sometimes the way how your character actually looks is not relevant, but how "right" they feel. I think Baldurs Gate is a great example. I've played as a Gnome, Dragonborn and Orc and while none of them are particularly attractive they looked so cool, specially when you get right armour to make them truly shine. Of course it doesn't mean I don't enjoy playing as attractive characters as well like Drow, Tieflings (Tieflings are hot as fuck, I will die on this hill), Elfs and Humans, I enjoy them, but not because they are "attractive"

In other hand I've tried Hogwarts Legacy all character models are so handsome, they really all look like internet celebrities you can find on Instagram, and yet that are so few personality in their faces... you can't make anyone look special or distinct, they are all pretty generic teenagers 

It's a weird take. Some games can profit from it, some not. It depends on what the game is going for and if these characters fit that.

Personally if I see a game where the developers appeared to pay way too much attention to making a hot character I worry that other aspects suffered. I assume it's difficult to develop games one handed. is DOA a good volleyball game? Possibly, but mostly it comes off as masturbation fodder for guys who somehow haven't figured out how to find porn on the internet yet.

Depends on the game. Thats really all I can say. Developers should do whatever they want.

I find it the opposite, if I see an ugliest character in a game it usually means identity politics is shoved in and that's a sign of ther prioritising stuff over making a quality game. Stellar Blade for example shows they know that their audience wants and are willing to give it, same with FF14, The Last decendant and more. They listen to the fans.

And it has nothing to do with porn, if people want porn they")) go for porn sites not games. It enhances the experience. I feel much better about fitting Geralt out with the best looking gear simply for the asteethics, something I wouldn't be into in the character model was ugly. In Stellar Blade it adds fun to explore or grind for outfits? Cause Eve's insanely hot. Wouldn't give a fuck about them if she wasn't.

It adds more fun for me anyway. The outfits in Stellat Blade have to other reason than to make Ece look cool and sexy and it adds more to the game to collect these outfits which would have no purpose if she looked like the new Fable character.

And what game is your go-to example for something that would have been improved by adding hotter characters? 

It's all in service of the story and character development. Whatever fits best in each individual situation is what matters. Whether a character is attractive or not makes little difference as long as it makes some kind of sense within the game's world and story.

Dragons Dogma 2 would be better srrved if the character creator let you make better looking pawns as peolme woulf be mote likely to use them and you'd get more bages which adds knowledge abouy the world, quests and enmies to help you along the way but as deep as the CC is, all you can make is masculine looking women who have little curves. You can't even make a good looking man in this game, all the bodies are Dad bodies. No athletes at all in a world where you have to be physically fit. 

Also, Dragon Age VG's character creator. Playing as a good looking dude and then a hot women in my two playthroughs and improved the Romancing. I'd assume the same would be said for VG, I see you can make a hot man but you can't make a hot woman. Full female bodies are apparently not allowed.