No it isn't, it just needs to be understood properly.
Studies have shown that, when looking at a picture, people who want to look at the whole picture tend to position themselves (if it is large) or hold it (if it is small) at a distance which broadly corresponds to the diagonal measurement of the picture. Of course there's variation from person to person, and presumably the findings might not work so well with images that have extreme aspect ratios, and it's probably been a bit over-simplified, but that doesn't invalidate it as a rule of thumb. Obviously it means that all pictures when viewed from this distance subtend the same angle, so it's probably tied in with the engineering of the human eye somehow.
But the key point is that it only applies to people who want to look at the whole picture. Obviously some people like to look at the details, but then they're not looking at the picture.
If you want to cater for the study-the-detail brigade, then always print at 300 ppi and you'll never ever go larger than 24x16 inches, even with a D800. Or if you want to cater for the look-at-the-picture people, the rule of thumb is a useful one.
