The downside of the tribute band is the amount of effort and commitment involved. Starting a band is tough, and most who choose to devote the time do so in order to express oneself. There's also an element of patheticness, of essentially trying to be somebody else. If you play bass in a November Rain: A Tribute To Guns & Roses, you'd better love Duff McKagan.
But AUCW is a loophole. A band can become another band for just one night, and the amount of promotion and hype behind the event makes the effort worthwhile. The members of Palace might have woken up in their ABBA clothes, but as of that day, the band was still Palace.
I propose that An Under Cover Weekend is a win-win for bands and fans, for original and cover bands alike. Anybody who was impressed by the Beck tribute set and had never heard Humdrum before likely did some Googling or Facebooking or Bandcamping the next day. To say that it is the biggest event of the year for local music would be false, because it exists in a realm void of the concept of geography. It is like summer camp, a brief getaway that allows all involved to return to life with a slightly different perspective.