I think that if you're putting on a performance for people, it doesn't work very well to take a hard line on anything. A little gentle editing of a traditional song can bring the song back to life. Otherwise, it's likely to become a museum piece.
Sometimes, it doesn't harm a song to clean up parts that have become offensive. Somebody was talking about Darkies' Sunday School in another thread. the song had been changed to "Baptist Sunday School," or just "Sunday School." You can sing it as "Darkies" if you want to perform it for its historical interest. If, however, you want it to be a living song, I think you have to do away with racist or sexist or other bigoted terms in the song, or at least tone them down. You certainly can't get away with teaching a classroom of kids a song about "darkies" and expect to be favorably received nowadays. I can't stand people who take political correctness to ridiculous extremes, but I don't think it's wise for performers to believe they have "poetic license" to offend or defame other people.
As for grammar and archaic language in songs, I see no problem in cleaning it up a bit, if it makes the song more understandable to the audience - I think that sort of editing has to be done very judiciously, though.
As far as I can see, there aren't any grammatical mistakes that bother me in "Bonnie Ship the Diamond." Now, if we're talking about the songs of Neil Diamond (click if you dare), now that's another story.

Song you sang to me - Songs you brang to me
Words that rang in me - Rhymes that sprang from me

Aaaaaarrrrrgh!!!!!
-Joe Offer-