About being chibi... its usually made in that style because of what Alex said but he missed one important piece, normally this is used on games where you customize (add clothes to base) so when animations are involved each piece of cloth need a frame too, so its easier to do smaller chibi look like doll (Yes Helm they are called dolls too...) than making a big realistic base, since it would use more work to animate and that is = to more frames for clothes....

Sooo resuming people who do them usually are lazy guys 
Jk its just that players accept chibi so well, so why bother making realistic???

I am working on this thing so I've been told that I need to remake the base, so here my new one, its supposed to be chibi like...



C&C plz

What is going on whit their shoulder? It looks like a bunch of meat was placed on it...if you know what I mean, old shoulder shading was better...
Now on smooth looking thing, problem whit old was that it was rough, huge difference in colors making an impact on viewer that made it look like WIPish while on this one it looks smooth, I say TOO SMOOTH I would like to see some more darker shades there to outline and show form a little more. I am especially referring to body/belly.

exactly, chose the best style and then make other follow it, of course they'll have to see it they can do it....