A few years ago, there were a number of cases reported in which courts explicitly abandoned the practice of imposing discipline based on the notion of appearance of impropriety. Although many courts still use the language, the notion is considered "outmoded" as an actual basis for discipline. (See here and here, for example.)
We can now add the North Carolina Supreme Court to the list of courts that have explicitly rejected the use of appearances as a basis for discipline. In a case called Worley v Moore, the court stated that "the trial court applied the incorrect standard under Rule 1.9(a) in disqualifying defendants’ counsel. In making its determination..., the trial court must objectively assess the facts surrounding the motion to disqualify counsel without relying on the former client’s subjective perception of his prior representation. The trial court should avoid the outmoded “appearance of impropriety” test. We reverse the trial court’s decision and remand this case to that court for application of the correct legal test."
The Legal Profession blog has more on the case here.