Kind of two questions going in this thread....one is where is inappropriate and the other is where it might be difficult to knit effectively. I think you're really asking about the second one, right?
I think each situation is different for each person -
I personally don't knit in restaurants because if I'm going out to a meal with someone I feel like I should completely there not looking down or only half paying attention. I do knit during waiting times at doctors offices because no one needs my attention. So basically..if something requires your attention such as a play then it's not appropriate.
As to the other part of the question.. I can't really knit a car (motion sickness aside) because I find it too distracting with all the visuals flying by the window. Some types of projects are hard to knit when you're stressed out, too. I would stick to simple projects for stressful situations.