I think there are two aspects to this.
1. Experienced (not necessarily professional) performers who have not rehearsed and not learned the song. Forget the words etc.
2. Youngsters or new performers who have not sung in public before.

Both can produce a "poor" performance.

At the club I run, I cannot excuse the former. I will not ask people to sing again if they cannot be bothered to make an effort.
I believe one has to encourage the latter, especially the youngsters.
You have to start somewhere, and a good audience at a club will understand that. After all, we are just a bunch of people sitting in a room and playing. I don't charge at the door. People vote with their coins in the hat.