I've noticed a few complaints about nepotism in casting here before, most recently about Tim Burton always casting his wife Helena Bonham Carter, Judd Apatow and Leslie Mann, Charles Bronson & Jill Ireland. The Godfather Part III is another famous example, with Coppola's emergency casting of his daughter Sofia.
Clint Eastwood isn't concerned about what people might think: he has, at various times, cast his girlfriend Sondra Locke (Sudden Impact), his other girlfriend Frances Fisher (Unforgiven), his daughter Alison (Absolute Power), his son Scott (Invictus), and had his other son Kyle work on soundtracks. Will Smith and Jada Pinkett Smith co-produced The Karate Kid, which stars their son Jaden.
I was reminded of this when I mentioned L.A. Story in another thread, in which Steve Martin's love interest is played by his then wife Victoria Tennant. Can anyone think of any more examples, blatant or otherwise?