Supreme Court justices don't have to be appointed from the appellate courts.
William Howard Taft, for example, was a law professor at Yale with past judicial experience (and a retired President of the United States) when he was appointed Chief Justice. It's not like a promotion ladder. People can be tapped from anywhere in the legal system, including state courts, and have been.
If the Republicans dislike this kind of politics, they shouldn't play that way. They have most of the advantage here, including having delayed many appointments through the Clinton years. They have scant grounds to complain, especially when most of Mr. Bush's nominees have been confirmed. That hasn't stopped the complaining, though.