I think one element of the equation people aren't talking about here is the bar staff; you can make the patrons dance all you want, but if the bar staff are sick of your schtick, the bar manager's never going to hear about it. What we've been consistently hearing from new and old venues is that they appreciate that we have the play the standards (Summer of 69, jessies girl,, sweet home, sweet child, bon jovi, midnight oil, boys light up, choirboys and so on [I'm Australian, so I think my standards are different]), but that they *really* appreciate us playing some different stuff because it helps keep them sane.
I think Jive's point is really easy to hyperbolise, and taken to that extreme I agree it's something to avoid; every time I've thought 'screw it, let's do something self-indulgent!' the cows-chewing-cud expression from the audience and the empty floor is enough to kill any enjoyment I was getting from playing the song. But that's not what Jive's saying. Know all the hits/standards whatever, be able to stand and deliver, but also take some pride in yourself as a musician and do a little more than the bare minimum and learn some more atypical, but still recognizable tunes too.
And I SO agree with twofingers; there are WAY too many bands around here that think they should just learn their 50 songs and let that be it. What kills me is that bands like that often don't fail immediately, if at all, so the practice gets reinforced, in them and everyone else.