I don't have to watch my knitting unless I'm doing a complicated pattern, so I'll knit while watching a movie (with my family or friends at home, not at the theatre) with the lights out. It drives my mom crazy.
Inappropriate places include high school class, I was disappointed to learn. Actually my teacher didn't say anything to me, but my parentals saw my needles in my bag and flipped. I didn't point out to them that I was at the time in dire need of something to keep my hands occupied at all times. This is very unusual for me, and most people would be surprised to learn that I had this phase because people who just fidget drive me mad (though if they're actually doing something it doesn't bother me).
Bad places/times to knit:
While drunk. I haven't tried it as I've never been drunk and I avoid anything that could possibly be messed up if I've even had one beverage.
While reading a novel. I simply haven't figured out the logistics yet, and it results in many dropped stitches.
While eating dinner (at home, alone, whatever). Sorry but there's just too much risk of getting something on my lovely yarn.
recent FOs: Shedir cap, Bricks of Atlantis, Pirates Hat, Citrine Socklets, Teddy bears, 1 entrelac sock
OTN: scraps blanket, Shedir for Teenie, Ice Serpent Hat
NIL: Qiviuk tam re-visited; weatherproof gloves; sweaters
My knitting blog: http://emilai333.wordpress.com/