Indeed, that's a good explanation, but they have no notable reaction to Magus, and let's face it, he doesn't exactly look like the rest of 'em. I mean think about it, in today's society if we saw a man that resembled the description of Bin Laden, wouldn't there be some kind of reaction? Even if he's not Bin Laden, the fact that he looks like him during this wary time is reason enough for some people to have a reaction.
Interesting, perhaps in RPG world, things are not that strict. Like in FF9, different tribes live together, fishman, hippo, birdman...in CC, demi-humans can be seen in many places. The creators might not think so much, they may assume it as a matter of course.
It is more absurd in RD, since Lynx(a human noble of course), uses monsters to guard his house. There're few humans in his house, but full of goblins, skeletons, ghosts, gryphons, demons.... what did Kato think he is, fiendlord?
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Edit*
Magus is a human of course, but talking about his face, it might be just a reference to his personality or characteristics, like in some anims, many characters don't look like normal human if you see then in real world you will ceratinly get scared， Perhaps they just over did it, if characters were not designed by Akira Toriyama, Magus might look like a normal human.
