Dunno about auditions per se, Kendall.  If you have to audition beforehand --and, especially, if you can only "qualify" by being pretty good (as opposed to just so-so--, it's not an open stage/open mike any more, is it?  Most of the open mikes I've been to are on nights of the week that would otherwise not draw crowds to the coffeehouse or pub.  Sometimes they're even in late afternoon to early evening, with the paid performers or the unpaid "showcase" performers taking the stage at, say, 7, 8, or 9 PM (depending on the night of the week.  It is the open mike performers and their friends who ARE the "audience."

Given that, it would seem that the ideal arrangement would be to rotate the performers the way TV variety shows often do.  Performer A does 2 songs, then B does 2, then C, then A comes back for 1 or 2, then B again, etc.  That way, performer A  and her friends don't leave as soon as her set is over, and so on for B and his friends, etc.

Mike and sound set up can be tricky if folks have a lot of gear to amplify, but in some acoustic clubs the set up is simple enough that it doesn't have to take too long to adjust to each new act--especially if the sound person writes down the settings from A's first set to use for A's first set, etc.

The open mike performer's first performance can be the "audition," and if s/he is hopelessly bad or offensive, there should be a way of uninviting her/him for the future.  At one club in Portland, OR, where a friend of mine holds an open mike, the owner told one guy he couldn't be on stage any more, thus being the "bad guy" and letting the emcee stay in a nurturing, energy-boosting mode.

One humane way of dealing with folks who are so bad that they shouldn't be inflicted on an audience would be to tell them what it is that they need to change to pass muster.  E.g., "Learn to sing on key," "Learn to tune your guitar,"  "Please limit your original songs to 7 minutes apiece,"  "No singing The Ball At Kierimuir when children are present," "We don't allow groups with only banjos and accordions," etc.  Constructive feedback should be tactful, of course, but if you can tell folks where it is they need to improve, they'll probably take it better than if you just  say "You suck."

~SWO~