The scene is just really tough right now, for a whole ton of reasons.
You know, when I started playing, bands didn't really get too uptight about the cover vs originals thing. They just covered stuff and tossed their own material in between things. We had all the big name Detroit acts for high school dances, and they covered tons of material. That USED TO BE the way things were done.
Now, it seems like we have so many more bands competing for fewer gigs with many less club goers looking for live music. Here in Phoenix, the "original" scene is made up of a bunch of bars that are bringing in 5 acts per night to play for free (hey at least they don't have to pay to play). The cover scene is a big challenge to figure out current material to cover - anyone checked out any listings of top "hits" from the 00's? I can hardly find anything there. A little Maroon5 maybe, but its really sifting through a bunch of industry generated chicken$#!^ for the most part, IMO.
Maybe we are just re-aligning with the internet, I don't know. The thing that really worries me is that we seem to have somewhat severed the chain of life in the musical legacy.
Anyhow, back on topic, to the OP: my 2c is to not be afraid to mix it up a bit. Covers can and should be done with your own spin and a certain amount of creativity. You can have your own thing going on and still play stuff people recognize. Then toss in your own tunes. That's the way its been done for years, and there's nothing wrong with it, IMO. Utter rejection of all previous influences may be in vogue, but it is simply ignorance masquerading as showtime, IMHO.