First, I disagree with everything. (JUST KIDDING) It's one of the best threads I have seen. Here are a couple more thoughts on memorizing.
With due respect to Radriano, learning "from the top" doesn't work for me. That way, you will know the beginning better than you know the later parts. When you perform the song, you will be getting into shaky territory as you near the end. And the ending is what the listeners remember. So instead, I learn the last verses first. Then when I sing it, I feel more and more confident as I go. There have been times in informal jams when I have been able to "rescue" a song by knowing what the other singer forgot. Don't do this unless you are sure it's okay.
First Lines can sometimes be a problem. It will help if you always call the song (to yourself) by title with key and first line, such as I'll Fly Away in G Some Glad Morning.
I have a little clip velcro'd to the top of my banjo hoop. I can note a set of tunes on the back of a business card and clip it there. Or if I am doing a new song, a card with the key words or first lines. Audience doesn't notice it. I think you could do something like that with a watch band.
What to do if you are rocking along and suddenly realize you have no idea what the next verse is: sing another chorus; scat a verse (woe-woe if it's a blues); play a solo on your instrument; signal someone else to play a solo. This should give you time to remember. If you are still stuck, repeat the first verse with a big finish, and act like that's what you meant to do all along.
With apologies to Kim C, I just don't like seeing a performer on stage sing with eyes closed. It seems so stuck-up, as if to say, "Oooh, I'm so soulful." If you are, let's see it in your eyes.
Thanks to all for an excellent thread! == Johnny