Pip Radish,
I'm actually not one of those who made a big deal out of the issue of excellence in performance, but several people have done.    My own feeling is that music - especially shared music - has many benefits to body and soul even when it's done very amateurishly and even when some of the singing leaves a lot to be desired in terms of pitch control, lyrics sung without flubs, etc.   It's camaraderie, it's cognitive and emotional stimulation, and it's good for the immune system, etc.

But when a singaround or song circle is done in a commercial establishment and is meant to draw in or keep customers besides the singers & instrumentalists, I very much understand how bad singing or very mediocre renditions of songs why it's important for the singing and playing to be pretty good. It's not just for the regard in which folk music is held but, more immediately, that the group may lose their singaround venue if other paying customers are leaving in droves when the singing starts.