I don't think it's necessarily a big deal. There are a variety of methods the MOC's use to form their boards and interview their candidates.
My Congressman has a pool of about 30 individuals with a wide variety of backgrounds - Democrats, Republicans, business leaders, military officers, school officials. They all bring their own experiences and outlooks to the selection process.
They look at who can make the interview date each year and divide them up randomly into 3 or 4 groups of 4-5 individuals. Then they divide the applications up by first academy choice and assign them to a group.
During the review, they also make every attempt to offer a nomination to those who are academy worthy.
In a small tight knit community, it would not be uncommon for a candidate to know someone on the review board. In the context of a board of several people, personal knowledge of one person probably won't be enough to cause any conflict of interest.
Additionally, while the Naval Academy assigns BGO's to high schools, West Point generally assigns them by Congressional District. If the MALO serves on the review board, it is likely he/she would know all the candidates, not just a select few for whom to lobby.