The singer is the priority here, and keys should be chosen to suit the vocals. However this is a compromise and often the song will lose something intangible when played in a different key. Therefore I think this should done on a limited basis, a better option is to cover songs that are singable in the original key.
I'm surprised that some folk can't hear much difference when a song is transposed. I think all keys have their own flavour, even on fretted electrical instruments - E is rich, G is happy, C is plaintive etc. Beethoven didn't write the Moonlight Sonata in E on a whim.
The use of open strings is also a factor, you just can't replicate the sustain and tone of an open string when fretting.
So yes, vocalists dictate key signatures and rightly so, but better on the whole to stick to stuff you can do in the original key. Wedding bands who need to cover all the popular stuff can transpose as much as they like, who's going to notice? I can' imagine a decent tribute act would use anything other than the original keys and tuning because it just wouldn't sound right.