Going back to Mr Happy's original post, I stopped going to one festival as their "pub sessions" were over-amped live bands with the "audience" not listening but screaming at each other over the noise! I pointed out to one of the organisers that some of wanted to go somewhere we could play ourselves, and he really seemed to think we were odd to suggest such a thing.
At our own festival , we have usually, at least on the first night, asked a group of musicians to go in to kick-start a session. They play purely acoustically, and are told their role is to facilitate the session and involve other players and singers, not to make it a performance by themselves. This was after one year where it seemed no-one wanted to be the first to start, and there were lots of potential spectators sitting around saying "Where's the music?"! On that occasion, 2 of us on the committee just sang a couple of rousing chorus songs, and in a very short time others joined in and within minutes a full-blown session was under way. We have 3 or 4 venues at our disposal including a private club, which is easier for including any musical children, and we put out posters of where all the sessions are, "Musicians welcome" signs at said venues, and some indication of what type of session it might be, e.g. Tunes, mixed, Bluegrass.

Incidentally, re Sidmouth Middle Bar, the main rreason for the sessions moving upstairs was the fact that the pub converted the bar we used to use into a dining room! We still get the noise from the ceilidhs in the back garden blasting through even up there!

As others have mentioned, pubs come and go (perhaps more go) or change hands over the years, with new managers/owners having different concepts of what sort of music, if any, they want in their hostelry.