My thoughts:
1) If used in a similar manner to image linking on this forum, it won't affect server bandwidth anymore than a small line of text.
EG: <img>YOUR_URL_HERE</img>
So you use imageshack etc.
2) I understand the issues around copyright infringement, perhaps a warning about short bans for using copyright images, and a punishment of say a week first offence? The threat of such should be enough to at least put a sizeable dent in the amount of players who might otherwise fake ignorance.
Also, I think the idea would be great for characters who have a few outfits they change to/fro regularly. Take for instance Jacula, he's constantly making efforts to change his appearance to avoid gettin' caught.
My final word: if implemented, make the eye option (and image part) visible from a greater distance, that way players can easily identify if they recognise the player based on outfit...
There are alot of players in PS with 2D art skills, I'd love to see such an idea supported. Who knows where it will lead.