Back then, I was a pretty involved raider (still am, but probably a step or so less) and almost all of my effort in-game was dedicated towards improving my gear's stats. I didn't give much thought to how it looked. Occasionally I'd make fun of myself for looks like the one above, when I simply couldn't get a hat or shoulders to drop in the first tier of Cataclysm raiding and had to settle for ones from Zul'Gurub or Zul'Aman. I wore them, because they were the best I could get, and every week I cursed the bosses in Blackwing Descent and Bastion of Twilight for not dropping better. But I always thought it was the stats that were important, not the fact that I looked like some demented tauren clown pretending to be a murloc to scare tauren children.
It took me a long time to understand how important a feature that allows you to customize your character's look can be to get you invested in that character. My groaning bank and void storage, filled to bursting with transmog items, can certainly attest that I quickly learned that lesson. But it shouldn't have been so surprising to me, considering I played in vanilla -- and back in vanilla, it was the fact that the tier raiding sets were such stark visual improvements that was half the motivation in pursuing them.
When the Dungeon Set upgrade questline was introduced, even hardcore raiders wanted to do it - even if the gear wasn't better than they already had, it was better looking in many cases. Seen today, the textures look primitive and blocky because WoW art assets have improved so much, and thus, the visual set (what we accept visually) has moved, but for the time it was a huge improvement.
We see this in other games, of course - the MOBA genre (such as Blizzard's upcoming Heroes of the Storm) uses new skins as a carrot, and other games have armor dyes and the like. Transmogrification has served as WoW's way to offer 'new skins', skins the players themselves can combine from the literally thousands of options available in all those dungeons and raids designed over the years. We've even seen cosmetic items start to make their appearance on the Blizzard store. (I think about buying the Jewel of the Firelord once a week. Managed to resist so far.) This use of our desire to control and improve our appearance, and not just our power, is still in its infancy and we could see many improvements: allowing us to mog legendaries, removing the need to keep the items indefinitely, relaxing the need for items to be the same kind of mail or plate or cloth. But the results of the feature have been undeniable. A sizable portion of players want this level of customization, which doesn't in any way increase their character power.
It's a lesson Blizzard should take to heart when designing new features and redesigning things like character models. Players will spend hours tweaking how they look. Let them.