I understand the reason why they have the height restrictions; it isn't about height inherently being offensive, but more about avoiding a potential PR disaster. The character creator offers alot of freedom with how you can dress up a character.
Give a 'Loli/Shouta' type character as skimpy outfit? May be cute in Japan, but in the West, where we are hypervigilant against pedophilia? You might aswell be adding softcore child porn to the game.
The lawsuits would come in, and neither Microsoft nor Sega of America would want that. Especially when it took them eight years to finally release the game here.
It is the same reason why Bethesda games program their children to be immortal; if the player character was allowed to kill child characters, there'd be an uproar and the game would get an AO rating, and major publishers absolutely refuse to host those games.
It is shame too, the height restriction actually works against making tall characters; My character was 203cm tall undressed, 208cm dressed. The height restriction caused the game to underflow and think I made the character less than 150cm tall, when in fact I was using the maximum height possible, thus preventing me from making my character the way I wanted.