Yes, as far as that goes. But think about it this way: there are 120 FBS teams. Appalachian State was undoubtedly the best team not in the FBS. The worst they could have been is #121 overall, and I think you would agree that it would be pretty myopic to say that they were not better than at least 20 of the 120 FBS teams.
Given that there are a handful of wins by FCS teams over FBS teams every year, and a large number of games between the top FCS conferences and FBS teams, we have a pretty good idea year-to-year that the best FCS team is usually around #80 or so in the nation. An again, there isn't much dispute that the best FCS team that year was Appalachian State.
I certainly don't agree with Sagarin's ranking of them in the top 40, but there shouldn't be much controversy that they were in the top 100.