If I remember correctly, perform is subdivided in kinds of instruments
Perform:
-wind instruments (flute, oboe, trumpet, horn, etc)
-string instruments (guitars, lute, mandolin, etc)
-percussion instruments (drums, gong?, etc)
-sing (many styles)
-dance (many styles)
-oratory (poems, storytelling, etc)
-etc
All bardic abilities must have some sound, so dance or mimic do not qualify;
There is a wonderful feat (Complete Adventurer, I think) that adds a number of perform skills for free equal to the character INT bonus, with ranks equal to his highest Perform ranks. I.E. I had INT 16 (+3) and Perform (strings) maxed out. With the feat I added Perform (sing), Perform (dance) and Perform (wind instruments), which was more than I needed for a wide variety of performances.
Many instruments also add bonuses to the bardic music abilities, so if you go for things like singing or oratory, you sure have your 2 hands free for fighting, but you havn't any of these bonuses.
I used a lute, and usually didn't enter combat. If someone approached, the DM ruled that I could keep performing with 1 hand (chek Perform DC 25) while defending with a rapier

It was fun and it worked quite well...