Why would you want a secret agent to stand out in a crowd? Why would you train an seven foot albino to be an assassin? Movies tend to be too focused on visuals for their own good (although to be fair the albino thing is direct from the Da Vinci Code novel.) 

I think that this type of grotesque casting is something that we pulp/theatrical audiences will just have to live with, just as we have to accept that Dick Tracy or Bond villains are grotesque. But that could hardly be they main problem since the movie was and is still sold as a Schwarzenegger vehicle.
Having said that, yes, there is a problem with the casting, not only Arnold but also Stone - that is generally an increasingly accepted aspect of movies: actors seem less and less like real or normal people.

"There is a lot of money tied up in this film and people expect to hear a boom when something blows up, so I'll give them a boom."

George Lucas as quoted by Harlan Ellison's WATCHING