I can't respond to all of the comments because there are too many.
First we would not have a modesty problem if we didn't have such a casual attitude when we approach God.
I think that at the root of all of this is egalitarianism that has been creeping into American culture over the last century. Authority structures are breaking down left and right. The story, which I do recall, that Kim mentioned about the girls meeting the President in casual attire is a prime example. Thank the Lord there was still a hue and cry and that shows that it's not all gone yet. As Rocketeer said, God is our Father but not in the same sense as an earthly Father and we are to fear him. We are to work out our salvation with fear and trembling before Him.
As long as it is just egalitarianism, and not sin, that is influencing what one wears, so be it.
There is a principle of honor to your betters that stretches back for millennia in all civilized cultures, honor to the high officials and Kings and Queens. Each culture had what was nice dress and what was work/casual dress. It varied but the lines were there. Even the people of the NT era had nice and casual. Do you think they didn't?? What about weddings and special occasions? You know they did.
I don't KNOW they did.
A word about the "it's too expensive" angle. God knows you he knows your situation, he knows what is the best you have. In old pictures of people going to Church or a wedding etc. you see them in their best coat, shirt, and pants. Many are careworn and the pants are high water because it is all they have but it is the best they have, and it is the attitude that causes them to patch it and press it and wear it because it is their best, that is God honoring. They wore it every time because it was THE (singular) nice outfit. Now, we think we have to be in the latest threads and many of them and if they are casual, well, thats what I am wearing because I am more concerned with looking right than with honoring God.
I think on the converse, there are people who are more concerned than looking right than honoring God.
Beyond modesty, I cannot accept that there is a set standard for all believers! I mean, in my opinion, people who dress in very plain dresses aren't very dressed up at all. (Think Mennonites) However, could I ever accuse them of disrespecting God because they don't care to look fancy? NO!
It is a heart issue AND and appearance issue. We are all witnesses for God. What we do is watched and observed. How we approach God is watched and observed. I don't think it's an accident that there is a casual attitude about God and his holiness that has infected modern day America. We don't approach him as we should with honor and fear and trembling.
Yes, what we do is watched and observed. Hopefully we will not hold our brothers and sisters (and those unbelieving observers) to a standard that is unbiblical and extrabiblical.
There is a scriptural arguement to this. God is holy and to those who come near him he will be regarded as holy. Also the Malachi passage that Rtaron mentioned.