I think it's preferable to sing from memory but not always an indicator of the best performance of a song. I have seen exceptions when a well-rehearsed performance becomes mechanical and a lyric sheet attached to a mic has created an exciting reading. I believe this has more to do with the experience and artistry of the performer than it does with the process of memorizing.

But I think it's important to memorize as much as you can, since generally speaking, it helps you internalize the song.

Frank