Yah, cause if this is the case, you're probably playing a show in Toronto or Vancouver ;-)
kiddin' (to a point)
Kiddin'? You know you're pretty much right on the money...
On the one hand, the indie rock band I play with really only plays on a bills with other bands, time is usually limited to a standard 45, our set is usually strictly adheared to with the exception of if anyone in the audience calls something out, in which case we'll oblige.
The other band who books more of the "evening" of entertainment will take a more "on the fly" approach. We have been playing with this approach and some of the concerns about doing this that came up here were repeated within the band. What we are working towards is 3 song mini-sets, within a set. Everyone knows that unless otherwise stated, we go into one song, it means we'll be going into the next 2 right after, trying to cut down on time between songs and in some cases, we've written little seguay's to keep the groove going even within these mini-sets.
We also use our crowd reading to determine when in an evening we'll play certian songs. If the place is hopping when we hit the stage, we go at 'em hard, if we start playing before a crowd really shows interest (or isn't drunk enough to get on the dance floor), we'll hold back on some of the more dance-able songs until we've got a good crowd going. For the most part, we'll play songs we actually want people to pay attention to (our originals) earlier in the night and save the covers for when the dance floor is happening.
As far as my personal interaction with the crowd, I love making eyes with anyone I can, (typically the girls dancing up front) and will do things like pointing a drumstick at someone who is really getting into it. As much as the stage can seperate the band from the audience, I like to try to do what I can to let people know I'm there having a good time with them, not just for them.