The Supreme Court of Kentucky, like many other jurisdictions, has used the notion of "appearance of impropriety" as a basis to disqualify attorneys in conflict of interest cases. Recently, however, the court decided to abandon its adherence to this standard concluding that "in deciding disqualification questions, trial courts should apply the standard that is currently in the Rules of Professional Conduct, which at this time requires a showing of an actual conflict of interest.” The case is called Marcum v. Scorsone (also available here). The Legal Profession blog has more here.
This is a good result. I have never liked the use of a standard based on an appearance of impropriety which is such a vague and subjective standard. Now, if we could only convince courts to stop talking about the "image of the profession"! But that is another story.
In terms of the appearance of impropriety, now there are essentially three approaches: some states hold it should not be used as a standard for discipline; others hold that it can be used as a factor when used in addition to other more clearly defined standards; and others still hold it can be used as a factor on its own.
The approach that considers the appearance of impropriety as a stand-alone standard for discipline has been rejected by the drafters of the Model Rules repeatedly, but many courts continue to cite the phrase, either as a standard in and of itself or as a factor to be considered in addition to a standard. One would think that the use of the phrase has lost its popularity, but some research suggests the opposite. See Rotunda and Dzienkowski, Professional Responsibility, A Student's Guide (2012-13), p. 20, stating that charges based on allegations of appearance of impropriety have increased at a rapid rate.