It's the age old garage band question: "Do we play cover songs or do we play our own original music?" Feelings on this question run every extreme, from bands that do just covers, to bands that straight up refuse to play anything other than originals. I witnessed it firsthand when I was temporarily a part of a garage band. I thought we should do at least a few covers, but the rest of the group disagreed. While there is now right or wrong answer, bands can benefit from cover songs.
Brian Franke is a songwriter/performer in the DC area. He put his thoughts into his blog, found at http://brianfranke.com/thinkingaloud/2010/09/24/play-cover-songs-vs-original-songs-two-schools-of-thought-on-performing/. As he eludes to in his article, cover songs are a good way to get noticed by people not familiar with your band or music. He also lists a few ways for you to use cover songs to develop your own music, such as learning how other groups write their music.
Again, while there is no right or wrong answer, cover songs can, if done properly, really springboard a group to popularity. The key is finding the right mix of covers AND originals that appeal to the crowd you want.