Sadly, if items had the same appearance for both factions, there would be very little visual/stylistic difference between Jedi and Sith, or between Republic Troopers and Bounty Hunters. What WOULD be a nice addition is the option to toggle Republic and Imperial item appearances in the item preview. I would like that addition.
I doubt that adding more options for all players will result in less diversity. I don't think the statistics works out. As an example I would point to the introduction of the Cartel Market.
While there are new items that have become popular, replacing old ones, you still have characters in the pre CM gear.
In short, you will always have favorites, but increasing choices will have a greater chance of creating diversity.
If I had to pick an exception I think it would be giving sages the option to switch their pebble animation with lightening. Then there would be almost no more pebbles and everyone could stop wearing safety glasses without having the fear of getting rocks in their eyes.