I think it needs to be actual trash like boots that you fish out, tires and cans.
Once you use these to craft, they are treated as a furniture item.
I have trash bags outside one of my villager's houses just as decor and it didn't lower the friendship definitely - have his picture and everything.
I hope so. I heard that in New Leaf that an oil rig Public Works Project would lower your town rating. I'd never use it, but why bother with it if that's true?