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.
Read the article: "Unlike the scouts, public officials are also bound by a line of Supreme Court opinions barring taxpayer support of any group that discriminates." Charging under fair market rent constitutes supporting the group that is discriminating. Charging fair market rent is not. So it sounds like the city legally can't cut the scouts any slack.