When playing with a friend, we can see each other's custom skins.  It randomly changes to Steve.  I can see my custom skin on my paper doll and in third person, but my friend sees Steve.  The same with my end.  I see Steve for him but his paper doll and third person show his custom skin on his end.  If we edit the skin in the creator, it changes to the custom skin for a short time, then we see Steve again for each other.  

Edit: both of us have the “only show trusted skins” toggled off also. If this helps