I am refraining from commenting on whether or not it is my business how others dress but I will throw out there that it does make it harder for me to enforce proper dress for my own kids when the people around them are not dressed per halacha. (The same goes, of course, for any public behavior.)
I work hard to teach my children what their halachik obligations are, and I try very hard to be respectful toward the people in their lives. Sometimes I have no choice but to tell them (when they ask) that a person is doing something that is not appropriate (I am NOT talking about hashgafik differences) but it gives me a chance to teach them the difference between respecting people and respecting their behaviors. Regardless of what they do, they have an obligation to respect all Yidden. That does not change the fact, however, that what they see their peers do affects what they long/ask for.
And yes, we try to practice what we preach and will not defend our own behavior when it falls short.