Engine 'could' support multiple body meshes but they locked out (or failed to provision) the ability. I can understand cause you'd have to re-model each clothing/armor item for each body type which multiplies the assets needed and then flag PC/NPC so they use the right mesh on-equip. Would probably want to have alternate anim groups as well which compounds the assets again.
But then the engine could have supported static shadows but they hardcode the shadow caster list.
I think it would be easier if they used body "morphing" rather than completely alternate meshes. Look at games like The Sims 3 and Smackdown Vs. Raw's Create-A-Wrestler, they allow you to change the shape and proportions of a character and all the clothing and such morphs with the body. Obviously, this would all need to have been implemented from early stages of development because every clothing and armor asset would need to be created with the morphing elements in place. It would be interesting to see morphing techniques could work somehow for beast races with Morrowind-style "bow-legs", although alternatively they could simply have different meshes designed to conform to that shape similar to how they have "male" and "female" versions of certain clothing/armor meshes.
The facegen component also needs an overall as well obviously. I'd like to see the ability to add a certain number of layers of "topical details" like scars, freckles, wrinkles, etc. Perhaps even the ability to map your own face into the game somehow.