Yes. By charging a buck a year the city is seen as supporting an organization that legally discriminates. By charging fair market value for the rent they they're treating the Boy Scouts the same as anyone else, no better and no worse. That seems to be the legal issue here.
Interesting choice of words you used.
You seem to be saying that this is not a "legal" issue, but instead is an issue of the City's "appearance". Nothing legally forbids the City from a $1.00/year rent, it just "appears" wrong.
If that is correct, then the Scouts may actually have legal recourse.