I don't think that musical literacy ever actually hurt anybody. If you have the innnate musicality to be able to play by ear, or to sing (and sing harmonies) without reading, learning some formal theory can only help.

I was exposed to a good bit of basic music theory and reading/writing in Catholic elementary school, and briefly took piano lessons. Before I started the lessons, I could pick out melodies on the piano, by ear with one finger ~ but never did learn how to really play the piano, never learned to coordinate both hands.

Years later, as a teenager, I took up folk guitar, learned the basic chords from books and, of course, combined this "book-knowledge" with my own listening experience and interpreation to start singing and playing songs. As I progressed, I learned to follow tablature. I couldn't, and still can't, learn a song from tab without also hearing it, but on the other hand, I could never have learned my current set of fingerpicking skills purely from listening, without the additional knowledge I could acquire from Stephan Grossman, Happy Traub, et al., via tablature.

I a little surprissed that the subject of "tab" hasn't come up here yet. Just as some folks take pride in not knowing standard musical notation, there are those who dismiss tablature, which is similar to "dots" much much less abstract insofar as it relates directly to your instrument.

Harking back to my grade-school music classes, I can slowly dope out a melody from standard musical notation, but not nearly so easily as from well-written tablature. Needless to say, I can't sight-read at all.

Music theory, especially basic harmonic knowledge ~ chord progressions and the like ~ is absolutely essential, but many players learn such "theory" instinctively, without necessaily knowing the stadard terminology for notes, intervals, etc. However, learning a bit of the standard vocabulary, etc., can only help make things clearer in one's mind.

We've all encountered singers and players who can read and follow notation but who somehow fail to convey the "soul," even the musicality, of what they're trying to present. I don't think it's fair to blame formal musical knowledge for such people's shortcomings; they're just doing the best they can, even though their best might not be enough for many listeners. Without their formal music education, they wouldn't be making any sound at all ~ and a person with real feeling for music would be able to take that same training and make more out of it.