I've found it much easier to create unique characters using splat books and homebrews. Especially homebrews. I mean, without the Avatar d20 project, I wouldn't have Peniuwo Nelei, waterbender. I'd have yet another cleric. Or yet another wizard. Or yet another barbarian. Or a rogue, sorcerer, druid, or bard. And that leaves me 15 or so characters I can play. Paladins aren't worth it, since clerics are better at being paladins. Rangers aren't worth it because fighters, druids, or rogues are better at being one of the three facets to the class. Fighters aren't worth it since barbarians are better at being fighters than they are. And clerics and druids are better at being them as well.
Using various sources allows for more creativity in character creation. Yes, this means more overpowered things. But guess what? Core is the worst offender (more overpowered spells/classes/etc than any other book). And a few overpowered feats or PrCs doesn't mean you should ban the entire book, or even the overpowered feat or PrC or whatever. It's eliminating so many characters that it's not worth the artificial balance. It's not even balance, just eliminating options, for reasons described in the OP.
But there's just a thin line between optimization and approaching Pun-Pun-hood.
More like a thin line separating a power gamer from very powerful combinations, and a very, very thick line between powerful combinations and Pun-Pun.
Optimization is NOT finding the most powerful character. That's powergaming (my definition). Optimization is finding the most efficient way to execute a character concept, and a secondary goal is finding the most efficient way for a given character concept to work in a campaign.
Ultimately, I definitely found that there was much less temptation in 3.5 for players to construct ridiculous (and unrealistic) builds to break game mechanics when using only the core rules. There were alot more plain old paladins. And that definitely put some more focus on character.
But of course, this is just my opinion.
First off, I'd like to point out the inconsistencies between the bolded segments. I mean, come on!
Now, ask yourself this. Was it because they weren't tempted, or was it because you banned everything? And were they going to try to find ways to break game mechanics if you allowed non-core? I mean, personally, I'd try to break the game more if it was core restricted, because I might want to play a character that's not possible with core only rules. Like a swift hunter.
Also, how is it more focus on character when you have "alot more plain old paladins"? That seems to me to be very...bland. And boring. Playing the same character over and over and over and over. My last three characters? Water bender, wolf crusader//shifter (homebrew based on PHBII druid shapeshift: I shifted into a wolf) tripper, raptoran swift hunter. Then I've got four arena characters, a halfling knife thrower, a crusader chain tripper, a dwarf warlock, and a cleric swift hunter (different style than the raptoran: he hides, this one doesn't). Then I've got one more maybe, a monk tripper (I like swift hunters and trippers) or a battlefield control archer. I repeated the same character concept exactly zero times. I repeated the same build zero times as well. I don't think I could stand to have to do the same build every time I wanted to do a tripper: fighter 2/barbarian 18 with a spiked chain. Or an archer: nothing (archers aren't good core only).