In the classical music, reading is absolutely, unequivocally fundamental. That's how orchestras a hundred large all get their parts ready to play in perfect sync, and it's how the music's composer communicates exactly what is desired of each musician. Lord knows the 2nd oboist would never be able to transcribe their part from a Mahler symphony recording, not the notes, much less the dynamic subtleties.
In popular music, we've been able to get away without reading as much as parts are generally a lot easier to hear and learn, as not many bands are more than about 5 people, especially not rhythm sections. But let's say I want to learn Portrait of Tracy, or the What Cha' Gonna Do For Me line. I'd still MUCH rather read and learn those than just try to pick them out of the recordings.
And yet, developing a strong, adaptable ear, especially one reinforced with some conceptual music theory, is ever more important; it's part of what helps us learn to improvise, and whole genres of music (or subgenres? jam band, etc) have come from groups communicating using their ears while playing. As noted elsewhere, many classical musicians who can study orchestral parts to very difficult music cannot improvise their way out of a Hot Pocket wrapper, and just like excellent by-ear-only musicians who don't read, their options are limited. They may be happy with their options, as may ear-only musicians...but putting time and study into both, in my humblest opinion, ultimately strengthens one's abilities at the other, and of course opens up that many new opportunities to play and earn a living where applicable.
And the weirder the music, the more likely you need to be able to read to get thru it. And the weird stuff can be really really fun. Also, sight reading is an advanced skill whereby you can maintain position/fretboard awareness while reading music for the first time, and with practice, you'll magically get better. I'm just starting on the no-looking-at-the-fretboard journey, but in past lives, was skilled on brass/woodwind instruments and sightreading not only got me through gigs and new gigs, it did wonders for keeping practice time efficient when doing things like a 2-hour Easter passion play on oboe, with 20 charts and a week to get ready. And good money for doing what I loved doing!
Ultimately, I feel like no style of learning music is overrated, and for particular groups, various styles are hugely underrated. In our particular group here, I know of many hugely skilled players who don't read, and I fully respect the choice to work strictly by ear. But I also feel like the skill of reading is a 100% positive bonus, one that takes effort but that is worth that effort.
