That's a relief. Now that I understand this rule, I think it's a complete load of bollocks, and should be removed from any notion of "correct" treatement of wikitext. Mismatched apostrophe groupings should be considered erroneous input whose rendering is undefined.
I agree, the rule should probably be removed as an ugly hack that doesn't really work anyway. However, we need to define some kind of rendering for mismatched apostrophes, since there seems to be a consensus that refusing to save "invalid" wikitext is a very bad idea. Is it best to render them all as literal apostrophes, perhaps?