The visitors twice trailed by two goals before Thomas Ince missed the chance to square the match when his penalty was saved by Jason Steele before Boro finally secured the win with a late Adam Reach strike.
Appleton said: "It was disappointing for myself and the staff and more so for the players because they were well short of how they can play.
"I've got to say I didn't see that first half coming. We improved in the second half and nearly did enough to get back into it.
"At the end of the day we are one excellent penalty save away from salvaging a game away at a side that are up at the top.
"When I took over people told me when Blackpool are good - very, very good - but when they are bad they are awful. I think in the first half I saw that bad side."