I think that sometimes the quality issue could be smoothed over by paying attention to the mix of style/songs. If there are several dire-ish performers then they need to be scattered throughout the evening rather than following eachother - otherwise you risk the mood dropping irretrievably, and you can get a lopsided effect to the evening if it was crap for an hour, then good for an hour &tc.
So I suppose that means that you'd have to go for a point-and-shoot "your go next" MC-ing.
Hopefully you could then use your good regulars to pull back the mood from time to time. But I suppose you'd have to vary that duty a bit, otherwise some poor sod will always have the hard work of regaining a bored audience.

Personally I don't mind the odd crap performer, because it gives you a chance to rest your concentration (its hard to listen intently all night). But what really drags me down is if I can see that there is a run of naff stuff coming up. That becomes a chore to sit through.

I have in the past been to a regular open mic where a couple of lads would stand up each week and sing stuff from a book, badly, because they had not bothered to prepare at all. They always had rapturous receptions because they were popular local lads - which made it doubly annoying for those of us who had prepared!!! Then, one night, a seasoned performer took them aside and suggested that they should practice a bit before the next time. They took it very badly initially - and disappeared for ages with confidence shattered. But when they reappeared they were TONS better and starting to really get somewhere. So people clearly do NEED the feedback if they are going to improve - it might feel harsh, but its actually a big favour. The same seasoned performer had a word with me about the fact that although my voice sounded nice, the words were very indistinct. I was pleased that he thought it worth telling me, and have sorted that problem out now. So, having been the criticisee I would still say - go ahead and give these people some advice, limit their performances until they are of reasonable quality, and if they are still dire and not going to improve then you'll have to gradually fade them out somehow (that'll need another thread I expect).

Finally - if this thread makes no sense then I apologise - but I am at work and supposed to be busy, so don't have time to proof-read.

KRis