The variety of opinions in this thread moved me to spend five minutes whipping up an actual sample bard, to illuminate the true extent of the problem, assuming it exists.
My assumptions: a human bard with a 12 INT and 16 CHA at 1st level. That means 32 starting skill points, and 8 each level thereafter. At 1st level, taking ability bonuses into account, a bard who wanted to put 60% of her skill points into Perform skills and 40% into other stuff might look like this:
Dance +7
Oratory +7
Sing +7
Strings +7
Winds +7
Diplomacy +5
Gather Info +5
Sense Motive +3
Listen +3
Concentration +6
That seems pretty good... a 1st level bard has a 65% chance of producing an "enjoyable performance" in any sort of dance, storytelling, singing, or dozen individual string or wind instruments. Plus she's got a decent Concentration for his spells, and a smattering of points in other bardy skills.
By 10th level, assuming she has put 2 more points into CHA, and found a +2 CHA-enhancing item, her skills look like this:
Dance +17 (12 ranks + 5 points for CHA)
Oratory +17
Sing +18
Strings +18
Winds +18
Diplomacy +13
Gather Info +12
Sense Motive +9
Listen +9
Concentration +12
Now, with a 90-95% chance of success, she can deliver a "great performance, "may be invited to join a professional troupe," and "may develop a regional reputation." And that's true if she's dancing a jig, reciting an epic, describing the party's last adventure, playing the fiddle, harp, lute, mandolin, flute, recorder, pipes, trumpet or coronet, singing a well-known ballad, belting out local drinking songs, or delivering her latest flattering composition about the Duke. (Not to mention that she's pretty good at pumping the crowd for information after the performance!)
Throw in a masterwork harp (a likelihood by this level) and she has a +20 in her best mode of performance. I don't feel like I've created a munchkin character here, but this bard can take 10, pluck the strings, and deliver a concert that "may draw attention from extra-planar beings."
You can take some of those points away and put them into other skills and still have enough performing mojo to dazzle the crowds in a variety of performing arts. You just can't do nearly everything anymore.
Now, plenty of the house rules listed here are no doubt fine. (Dr. Rictus's example probably has the best combo of fun and simplicity, if realism isn't a concern.) And maybe other people have different expectations about bards, or maybe I've screwed up the math. But I thought this example might be interesting as a sample.
-Sagiro