There are many outworlders and they look like humans. Never been an issue.
I think this has to do with the Dream realm and the time shtick, maybe it's like a Pandora's box? They gonna resurrect a bunch of fighters to help fight off Raiden and his stooges, and get this Shao Kahn as a result.
I dont know of anyone from outworld looking human? Could you give an example?
Probably a non-canon side-story in his Bio related to Onaga.
Since the timelines seem to be merging, I could see that maybe this being a possible merging of half Shao Kahn and half Onaga, but who knows?