I don't think the body itself would prove to be too distracting. I myself often find the lack of a body in an FPS game to be jarring, as it does leave the impression that I have no real presence in the world. A visible body is one of the very few things I liked about Duke Nukem Forever. :P
What would be distracting is if you tried to do what Thrixxx did with 3D Sex Villa's first person perspective option, and actually having the camera move with the character's head. Now THAT is distracting, and could potentially cause motion sickness in particularly vigorous scenes.
A visible body though might help to heighten the sense of presence, something important in role playing, especially if you also provided options for the player to select their own name, skintone, and even if they have bodyhair or not, thereby allowing them to visibly place themselves in the game.
However, it should also be considered that this would be a huge undertaking for the developers to do. As nice as the idea is, it would require quite a few additional resources. Aside from the body mesh, there would also need to be clothing meshes for each character type, an animation for the trousers being unzipped, and (worst of all) a complex IK system that would not only allow the character's hands to follow any objects you've picked up (giving the impression they're holding them) but also readjust the legs depending on how low you're crouching.
I only know of one game that went through the trouble of having complex IK controls on an FPS character, and it wasn't exactly executed brilliantly:
http://www.youtube.com/watch?v=LiYSmiJQnOgStill, I think it's something worth keeping in mind once the team has more resources available.