I think they're a welcome part of the live experience. Not everyone can write songs and/or be a recording artist, so cover bands give amateur musicians a chance to experience the thrill of playing live.
Similarly not everyone can afford to pay to see a live band every week, so it provides inexpensive entertainment for punters down the Dog and Duck.
The way I see it it's a win/win.
I think if an established artist wants to release a cover of someone else's song then have at it; the original artist/label can always stop the release of the cover if they don't like it.