This is a problem encountered in games where players are given choices, being able to make choices and having them reflect on the world is fun, but if the game gets a sequel, than you encounter a problem, you have to decide how to adress this in later games. Some games will define a particular set of options as "canon", in the Elder Scrolls, though, Bethesda chose the option of keeping the actual identity of the character vague, and I prefer this choice, as it allows the player to make the hero whoever they want. It's rather offputting when I go to great lengths to create a particular character, probably one I like, and envision the hero of the game as that character. Then when a sequel is made, it suddenly tells me that the hero was a completely different character, and probably one I'd never have played if given the choice. Of course, this does mean that there is no definite identity for the hero, but it's a sacrifice that must be made in order to avoid all but one character potion becoming completely not canon.
If the game had somewhat more limited options, another approach that could have been done is to have a few choices that would determine the general identity of the last game's hero early on in the game. In KOTOR 2, for example, while actual Star Wars canon might have assigned a specific identity to Revan, in the game, several dialog options the player could choose at the start of the game would determine what sort of person Revan was, but that case, things were a little more limited. While you could choose your six, appearance, name, class and such, you were always human, you would always be revealed to have actually been Revan, you would always be a Jedi, and while quests often gave you more than one way of completing thwem and you could choose between the light side or the dark side, in the Elder Scrolls, things are a little different. You can be any one of ten races, and there is already a very long list of premade classes to choose, and that's not accounting for custom classes, while the main quest remains the same for all characters and has the same ending (at least in Morrowind and Oblivion, and for Daggerfall the game has the Warp in the West to account for different possible outcomes, but that already seems like enough of a handwave, if it's abused too much and used every game, it would lose all credibility.) and it is assumed the character does it (though I suppose that if you don't want to do it you could even assume that your character failed the task or refused the call and some other hero took it up instead.) but which factions you join and such are entirely your choice (and I do think that the fact that the Nerevarine is the head of House Redoran or something would not go unnoticed if the character were given a predefined identity.) there's no way the game could account for all these options and let you make the hero of the last game who you want.
Of course, this all highlights the need for a pronoun that encompasses the existence of a gender without actually specifying a gender. S/he doesn't really cut it, and "it" is too dehumanizing.
Actually, he might well work, considering that in cases where a person's six is not specified, it may often be used. Maybe in modern times, people wouldn't use this for fear of coming off as sixist, but I never envisioned people in Tamriel as being all that big on political correctness when it comes to the notion of gender equality, if it has even been concieved by anyone at the time.