Well, I suppose someone has to offer a dissenting opinion.Good diction can be important, but I don't believe it is always essential, or even necessarily desirable. Some of my favorite singers don't have particularly good diction, yet I feel that they put their message across very effectively, and I would not want to sacrifice the overall effect of their presentation in order to improve their diction. A lot of blues singers come to mind in this context -- Muddy Waters, for example, was a very powerful blues singer with fairly poor diction. Ray Charles, Bob Dylan, Gregg Allman, and Elvis Presley are (or were) great singers also, in my opinion. I'm sure I could come up with a number of other good examples given a little time.
Drawing analogies to other arts may help illustrate the point. I would consider diction in singing to be synonymous with accuracy in painting. There have been some very fine "precise" painters throughout history -- from the Flemish painters of past centuries (Rembrandt, Vermeer, etc.) to more modern day realists (Wyeth). But there have also been some very fine "imprecise" painters -- most or all of the Impressionists, as well as the abstract expressionists. What they conveyed may not have been particularly clear, but I consider it to be just as valid and ennobling. [Actors might provide another useful analogy -- Marlon Brando, anyone?]
I also frankly enjoy listening to songs that "reveal" themselves only through repeated listening. There are some truly great lyricists out there that one can only absorb over time. There is joy in discovering a lyric that was never quite clear enough to catch before; it leads to a process of continuing discovery, partially because all was not revealed the first time around.
Is this making sense to anyone else?