The viewer version you've got now is the last official release (not a release candidate). It's got a bug in it, which prevents palletized textures from working properly with certain nVidia drivers. That is why your skirts appear to go full length when you go into appearance mode. It's got nothing to do with how the skirts themselves were made. It's a rendering problem.
There are three ways to deal with it, ranging from simple to moderately complicated. Here they are, in order of complexity:
1. DISABLE PALLETIZED TEXTURES
Press ctrl-alt-D to add the Advanced menu to your menu bar at the top of the screen. Then click Advanced -> Rendering -> Features -> uncheck Palletized Textures. Now rebake your avatar outfit by clicking Advanced -> Character -> Rebake Textures. Your skirts should now look normal.
You'll need to do this every time you log in, as the palletized texture settings do not persist after you close the program.
-OR-
2. DOWNLOAD AND USE THE LATEST RELEASE CANDIDATE VIEWER
Release candidates are sort of sneak previews of the next version of the SL viewer software. They often contain bug fixes, and new features, that aren't present in the main viewer. The downside to using them, of course, is that they're unfinished (which is why they're "candidates" instead of actual releases), so they're not always fully functional. If you use an RC, it's best to check for updates to it as often as possible. And if you want to do your part to help the community (which you should), be sure faithfully to report all bugs you discover, so that they can be fixed before the RC goes main.
The particular RC that is out right now contains a fix for the palletized texture bug. To grab it, go to the Downloads section of the SL website,
http://secondlife.com/support/downloads.php . About half way toward the bottom of the page, you'll see a section called Test Viewers, with three columns under it. The very first column is labeled Release Candidate Viewers. Simply click the link to download the appropriate one for your OS.
Use the latest RC, and your skirts should look normal.
-OR-
3. USE A GRAPHICS DRIVER THAT IS UNAFFECTED BY THE BUG
The last few nVidia driver series are susceptible to the bug. Slightly older versions are immune. At present, the most "SL-friendly" is the 175 series. 175.19 is best, if that version is available for your particular graphics card. If it's not, then try 175.16.
To get an older driver, go to nVidia.com, and enter the one you're looking for into the Search nVidia field at the top right of the page. It helps to include your specific card and your OS version in the search terms. For example, I have GeForce 8800's in this machien, and I'm running Windows Vista 64-bit. So to find the driver I needed, I typed the following:
"GeForce 8800 175.19 driver Vista 64-bit"
Just substitute your video card model, and your OS version, do a similar search, and you'll find the driver you need. Then uninstall your current one, restart your machine, and install the new one. Run SL, and your skirts should look normal.
Pick whichever one of those methods you prefer. All three will work to solve your problem.