I actually thought the joke was funny, and it fit well with the themes of the film which centered around propaganda. Rhodes when along with it because he is a solider, but as his password proved, he was not the brains behind the paint job (also, that he's not very good at coming up with secure passwords). Killian was creating this master illusion of the perfect foreign threat, but he also wanted to give people something to rally around. Creating fear is good, but there has to be a balance so they are still wiling to go off and fight. So AIM created the whole idea of the Iron Patriot armor as a mirror imagine to the Mandarin.
It made sense in the story, they even joked about it. I just have trouble understand people who are like...
Same exact guy in the same exact suit, plus a paint job. I mean, there is no reason for them to use the Iron Patriot design outside of IM3 since, as I explained, it was created solely as part of AIM's plan and was used in the film because it helped highlight certain themes. But regardless, I just don't understand how Rhodes is a cool guy unless, oh my god he painted his armor now he sucks. I would hate to see the reaction if he dyed his hair, maybe got a tattoo, and started having everyone call him by his first name, James, instead.