I play by ear. I can read music, but I can't play by sight. It does come in handy, though, to be able to pick out the notes separately in a difficult and fast melodic passage. I read them to know what I should be playing, then usually memorize the part so I don't have to sight read.

My experience -- a lot of sight readers have difficulty improvising. If it's not written out in front of them, they don't know what to play.