Maybe familiar vs. unfamiliar isn't the question, although I do think it's important for a performer to include a good number of familiar songs. Some songs - long ballads, particularly - demand a lot of attention from an audience. If you are going to perform a complex song for an audience, you have to work hard first to gain their attention - and then not abuse their attention, once you've got it. It's hard work for an audience to follow a complicated song. Be sure to give them a break with a no-brainer afterwards.
-Joe Offer-