[This is in response to a debate started here, and continued here, here, here, and likely lots of other places.]
As a child of the punk rock and "alternative" era, I do have some mixed feelings about this. I don't think authenticity is the sine qua non for good art, but it does matter sometimes. Perhaps in many cases it is necessary, but not sufficient? You can be as authentic as you like and make terrible art (just go to an open mic night anywhere for ample and excruciating evidence), but even very good art that either springs from an openly crass desire to cash in, or even from an authentic political or social worldview that I abhor, leaves me a bit squicked out. I can never quite get past the fact that Ezra Pound was a fascist. And then of course there is Leni Riefenstahl, but that's a more blatant and understandable case, but both are cases of factors beyond the just aesthetic and entertainment aspects.
In a case that's closer to the current debate, the Ramones have been brought up, but well, I admire them a lot less because they weren't satisfied with making great and very influential music and being able to put food on the table doing it... they had to be big fucking rock stars, and felt like they were failures in some way because they never made it to that level. I find that kind of sad and pathetic. It doesn't make me like Blitzkrieg Bop any less, but there are multiple levels on which you can appreciate art and artists, and on the level beyond pure pop bliss, it does diminish them a bit for me.
Insofar as the "punk ethic" matters, I think it does because it was a leap of imagination that created a space and a community where you could make your art and have an audience for it, without having to contend with a need to be a big fucking rockstar or to otherwise succeed in the larger capitalist system. It opened up a closed system to dedicated amateurism, in much the same way as blogging has opened up journalism and opinion. Abandoning the idea that the measure of good work was fame or money or a corporate imprimatur was important, and it allowed a lot of voices that would have never seen the light of day otherwise to be heard and in some cases to have a broad influence.
There are a lot of people who can make great art who don't have an aptitude for or desire for selling it and themselves, and the system of popular art at that time just didn't have a space for them. I think that context had more to do with Kurt Cobain's demise than anything. He just wasn't prepared to be famous, and really had no desire for fame, but he happened to be in the wrong place at the wrong time when a small scene small blew up into a global phenomenon.
Others handled it far better and more pragmatically. Sonic Youth and the Flaming Lips have used their status very well to explore opportunities that they might not have been able to without the resources of a major label. Pearl Jam, though at this point their music bores the heck out of me, are really great about remembering where they came from and helping smaller bands to get heard and get paid, and of course their doomed battle against Ticketmaster was one well worth fighting. Bands like Bad Religion, Jawbox, and the Poster Children who went into the major label world with their eyes wide open and with a plan came out very well, ploughing the money from their major deal right back into their own label or studio to assure their future artistic independence and their ability to help other worthy voices to be heard.
Just like with the political tension between radicalism with purity/integrity and messy, pragmatic progressivism that works within the system, the latter is a tough balance to maintain, and the temptations of money and power can easily lead you astray if you start viewing them as ends instead of means, but the upside of the attempt is much greater than the ascetic and lonely way of the radical.
Now, I love a lot of popular art, and indeed a big motivation for a lot of popular art is making money, so there is a tension there. I think much depends on what kind of art you make. If a significant element of it is politically or socially conscious, then selling out is a relevant concept. It's hard for say, the Shins to sell out, because their music doesn't mean anything (aside: This is a big part of why Garden State is so cringeworthy. "The Shins changed my life?" Puhleeze.) aside from the personal meaning and the emotional resonance that individual people find in it.
So, selling out is relevant for Fugazi, but not so much for the Shins. Authenticity and independence is really important for socially and politically relevant or critical art. I'm not saying it's totally impossible to critique the system from inside it, but there is a reason beyond just aesthetics why Fugazi are relevant and Rage Against the Machine are laughable. I don't care if I hear Mogwai or the Shins backing a commercial, because it has no real bearing on the meaning of their music. However, when I hear the first two lines of "Fortunate Son" ripped out of context to sell all-American blue jeans, well, that's a bit more problematic, because that song meant something, and could still mean something in a larger cultural and political sense, and that use of it is a total distortion of said meaning.
However, perhaps the most important thing to keep in mind is that the punk/DIY movement and ethic and associated worries about selling out were a product of a specific cultural time and place, defined by a certain corporate media structure. Insofar as those values seem less relevant to this generation of artists, it may be a result of the changing media landscape. Post WWII, a corporate-owned, broadcast-based monoculture dominated American life. As I went into above, punk rock was so revolutionary because it was one of the first revivals of amateurism and folk culture in the face of that, and one of the first significant post-broadcast movements that reminded ordinary people that they could make art on their own terms in a way that was integral to the rest of their lives.
Now that the net has come along and communities for creation and channels for distribution of those things are ascendant and ubiquitous, the oppositional stance of punk as a throughgoing artistic ethic doesn't quite make as much sense anymore. I think some of it does still make sense somewhat as a political and social ethic, and I'm a bit disappointed to see very little in the way of political and social consciousness or questioning of corporate/capitalist values on the part this new generation of indie musicians and artistsand on the part of digital creatives more generally, but that's probably an issue for another post entirely.