wow, this is really cool, I love the idea and fully support this - If you need some sort of spriting (not really pokemon though) I'll try to help
as for the clothing thing, can you change anywhere? is it in your bag and you change? is it in a closet? also, do people come up to you in disdain? or if you just ignore talking to people, will it not matter? how will the PC react? do they refuse healing your pokemon? are you refused the ability to buy anything at the Pokemart?
the distortion sounds AWESOME, are you saying that the graphics might change from (lets say) gen 3 to gen 2? or gen 2 to gen 4?