DY: I have had occasion to meet girls who are very Tzanua people even if everything is not always covered properly. I have met girls who keep everything covered and yet aren’t Tzanua. And, of course, I have met Tzanua girls who cover everything and (well, the fourth category doesn’t need to be named).
At the end of the day, while the third category is obviously the ideal, the first category are the girls who are, for the most part, going to be more conscious of Halachah and will raise their kids to be Yirei Shamayim (over the second group, and probably come pretty close to the third). The Halachos are what they are for a reason, because of how people react to seeing certain things. But the fact is, that teaching Tzniut as a proper way to act stems from acting properly, as you said. The girl who is modest but shows part of her knee sometimes will more often than not be more of a Bas Yisroel than the flirty girl who wears long skirts. I’ve learned to ignore the technical details of what is worn (unless there is a real breach of Tznius, in which case I ignore the person) because, at the end of the day, an inch here or there does not define a person (though several inches might).