I think the Chicken Chokers, an OT string band from Ithaca NY, used to include a cello player in their unusually frantic style of Appalachian music. They cut a few records for Rounder back in the 1980s (?), have recently reunited (but apparently without the cello to judge from their Website
), and are supposed to be coming out with a CD later this spring.

In any case, their cello player held the instrument on a shoulder strap like a guitar. And if it's not the Chicken Chokers then it was some other band that played at the Eagle Tavern in New York in the late 1970s.