Back on topic: yes, it is OK. I do it if I'm trying to add to my repertoire and there hasn't been enough time for me to be confident of the lyric. The only problem is that in order to read the songbook you have to have a stand of some sort, and the print in these is usually not large enough to allow you to stand/sit back from the text. So you put a physical barrier and an 'eye contact' barrier between you and the audience.

One solution is to print the song sheet out large enough so you can read it off the floor in quick glances. This helps no end in maintaining contact with the audience. Can also be a joking point.