I don't see why any particular tracks should be considered so sacrosanct that they shouldn't ever be covered. By a top artist or a covers band - if you can capture the vibe of the original (rather than an exact facsimile) or add a slant on it then that's fine by my book. Whether or not I'd consider something too cheesy to play is another matter - it depends upon who is signing the cheque.
Covers vs originals thing - I would personally rather play someone else's good tune than my own sh*te one. Perspective is something that most originals bands seem to lack - the music scene is not littered, ankle deep, in talented singer/songwriters so far as I can see. Even taking my own limited experiences into account - over the last month I have either approached or been approached by three originals bands recently in an attempt to do a bit more and, when listening to their myspace tracks, retreated - the stuff was utterly dire. But they all reckon they have big gigs booked, just a sneeze away from a deal etc etc. There is sooooo much good music out there, why settle for mediocrity just because no-one else has done it?