"Performing from sheet music or a songbook is a skill that has to be learned. The fact that professionals learn this skill isn't an excuse for those who haven't to sing to a piece of paper rather than their audience."
Totally agree. And having that paper at the ready does not imply that you aren't professional or haven't rehearsed, any more than performing without such implies that you are and you have.
As for ad-libbing when you blank on a lyric:
When you blank on the lyrics of a song you know well ? even one you wrote ? maybe your ad lib will improve the song or at least not hurt it. But it often weakens it (substituting some inane lyric or a repeat of an earlier lyric for what was one of the best lyric lines of the song), even if the audience does not notice. (This has happened to me during both a recording session and a live performance of one of my best songs: I repeated a lyric from verse 1 in place of the real lyric in verse 2. The audience did not notice; the song just wasn't as funny with that 'ad lib'.)