I find this does not work as the actual values are stored in env: and envarc: so unless I delete those entries clearing appdir does not work. Is this proper approach to just clear out or am I missing something.
No, constantly clearing APPDIR: is overkill when the real problem is that APPDIR: is an entry in the command path in the first place (an experiment that didn't quite work out).
The right solution is to find the "Path ADD" command in S:startup-sequence and remove APPDIR: from there and the problem should be solved permanently.