Some folks, especially US, confuse business casual with bummy/hoochie/unprofessional.
My prior employer (health insurance) was very conservative. All were required to wear hose (even in 100 degree heat) and men were required to wear ties. The company instituted a business casual during the summer and every friday the rest of the year.
Some of the folks were so off the hook that the company had to publlish pictures (like Glamour's DOs and Don'ts column). Ladies should not wear midriff-baring tops, tanks w/o a jacket, or shorts to the office, regardless of the dress code! Jeans were acceptable as long as there were no holes/rips/writing and white tennis shoes were okay as long as they were clean.
In my current company (phone company), the policy is casual dress all the time but there are still some folks that forget that they are coming to work. The other day, I saw a manager in flip flops and shorts and I just shook my head.
In my old employer's policy and procedures they summed it up well:
If you would wear it to the beach, the gym or to clean your garage, DO NOT WEAR IT TO WORK!!
To answer another part of the original question, yes, we view people based on how they are dressed. The key is to dress appropriately for whatever occaision. Inappropriate dress means poor planning, time management or just poor taste; none of these qualities are professional.
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