I always dress business casual or better to fly. I know it's silly in this day and age, but I still do it. It's probably a throwback from when I was a kid (I'm only 26) and my parents instilled in me that you didn't dress like a slob when flying. But even then (early/mid 80s) I don't think there was a dress code.

My "official" reasons for dressing better are always 1) during irregular ops it might help to look/act like a business traveler 2) If I lose my luggage the clothes I'm wearing would be at least acceptable for the meeting/presentation/event at the destination. That was my Dad's reason--he lost a lot of luggage in the 80s. But (2) is kind of bogus for me because I never check bags and I still dress up on the way home.

I have seen dressing poorly help someone get an op-up. On a badly oversold IND-DEN flight on a Saturday in June, I was op-upgraded. From looking at the crowd few (if any) others had status. The guy who ended up next to me in F was no-status, non-MP-member, ratty looking, and wearing a truly obscene T-shirt (he was going to a business meeting in Canada, so I'm sure he had packed better clothes). The GA told him he was op-upgraded because of his "unique" t-shirt. Neither I nor the FAs appreciated it though, as the guy got completely drunk, spilled his drink on my seat, told me his life story, and IMO sexually harassed two of the FAs for the majority of the flight.