I always thought they were supposed to look Asian. Sure, some of them have round, dinner-plate eyes, but that's probably the anime influence. All the Fire Nation and Earth Kingdom citizens have fair skin, dark hair, vaguely Asian features, and Eastern clothing and hairstyles. I personally wouldn't mind a few actors playing characters with different backgrounds from their own; when it would start to get skeevy in my book would be if most of the leads were played by white actors. (Of course, if M. Night adopted race-blind casting, the crazy part of me that dreams of having the role of Azula magically fall into my lap despite my having no professional acting experience whatsoever would rejoice, because my coloring and build is somewhat similar to hers...but the non-crazy part of me recognizes how delusional this is.)