peoples' characters showing up "generic"

Hello, first time poster here, posting a question that I can almost guarantee has been answered before. I've dug around and haven't been able to find a thing so here it is.

I have a white haired winged elf female, and my friend has a black skin toned male elf. We play next to eachother. He pointed out that on my screen his character is white, and that on his screen my char's hair is showing up black instead of white, with some generic features that neither of us have chosen. We play right next to eachother on LAN and that's how we noticed it.

I can pretty much answer my own question here... I'm almost positive that it's due to the fact that we're playing on 1$ PC's...but I'm wondering exactly what option is it that's showing us generic character models versus our customized characters or in my case my sexy elf.

Thanks in advance,

HolyB