They have already stated that they are limiting the character creation to to make sure all characters look good, so no worries there. All the noses, eye sets, mouths etc will look good so you won't be able to make freakish looking people anymore. They will probably have a few really buff body types to select from to go with the attractive faces as well, so I wouldn't worry. Also, judging by the screens we have seen so far, all the NPC's will be quite attractive as well! Definitely a step up over Oblivions nasty character models.
You will still be able to make freakish looking people. All character creators give you the ability to create freaks if you really wanted to, but our new setup makes it quite a bit more difficult and actually easy to make very cool looking ones and still get a lot of customizeability and very unique looking characters no matter what you are. You guys will be very happy, its really awesome