I think you're looking at this the wrong way to be honest. If someone changes their armor/look on their toon (personalizes their toon) once or twice and then forgets about it you view the overall development a failure. I think its the opposite. If I am able to customize my toon I am able to make it mine. I am able to make it different. I have more ownership and investment in my toon. If I only change the look once and Im happy with it, and I think its the best look possible for my taste I am happy. This will indeed keep me playing longer. Ive got more emotional attachment/investment to the game now. My toon is even more of an extension of me.
I think the cost of the development of something like that would pay for itself in the long run. Obviously you (blizz) are a business and look at the bottom line like any other business. Will the investment of dev time/money come back to us in account longevity/new accounts. I think it would. Anytime you can get someone emotionaly attached (as you well know already) to your product/service the customer is more willing to pay to continue using the product/service. I know I would LOVE to customize my toons.
Make it so that you can only customize high level 85 armor. Give people more incentive to continue to level (spend more time playing). Give the people who already leveled more incentive to stay. It's a win win really.