Oh gosh her hair is so cute, I'm screaming!
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I would only want her hairstyle, but the dress is nice too. Just not a fan of red since it wouldn't be dyeable.
That's how all gear works though - it doesn't get added to our character model, it replaces that section of the body. If you see the models for individual parts, even exposed skin parts are also modeled into the gear piece.
From what I remember, the issue with Yotsuyu's kimono was that it was only really designed to work in a particular pose - she stands still or walks slowly, and holds her arms in a certain way that make the sleeves drape as they should. It wasn't designed to handle the full range of player movement.
Yotsuyu is still a regular midlander, just with a custom face model. There is nothing special about her kimono; it's even been ported unofficially, though it does have sleeve clipping issues, which if I recall is why it was put off indefinitely.
Frankly, I think both Lyse's dress and Yotsuyu's are both extremely overdue. They have to be two of the most requested NPC outfits I've seen in my entire time playing. I'd also really, really like Yotsuyu's pipe smoking animation as a looping emote.