Why did Hashem say not to look at his appearance?
Rashi: Do not look at Eliav's beautiful form [and infer that he will be king].
Radak, Malbim: Do not look at Sha'ul's appearance and height, and think that because they are better than Eliav's 1 , Sha'ul will continue to be king. Malbim - before, I chose a king due to the nation's desire. I chose a tall man, who would find grace in the eyes of the nation. Now I choose a king who will be pleasing to Me; I do not look at the appearance, only at the internal.
How could Shmuel think so before seeing all Yishai's sons? Perhaps one of them is beautiful and tall like Sha'ul! (PF)
Why did Hashem despise Eliav?
Rashi: He had an angry temperament - "va'Yichar Af Eli'av b'David" (17:28). Refer to 16:8:2:1.
Why did Hashem say that man sees only appearance?
Rashi (from Sifri Devarim 17): You said "I am the seer" (9:19). Here I inform you, you do not see!
Radak: His appearance is proper for kingship, but I see hearts and kidneys 1 ; his heart is not straight.
Malbim: What people think is beautiful, it can be that really, it is ugly and despised, or vice-versa. Man's senses detect only external appearances, but not the internal.
Vayikra Rabah 4:4: The kidneys deliberate, and the heart makes the final decision. Lev Eliyahu (Bereishis p.124) - "Hashem Choker Lev Bochen Kelayos" (Yirmeyah 17:10) - i.e. He sees leaning to a Midah.