I felt the exact same way about tips until recently. People had been just dropping money onto my keyboard as I played, and it was getting a little ridiculous (hard to call it "rude" but I didn't like it while I was in the middle of a song). So I found a nice $3 glass carafe at WalMart and put it on the floor near my keyboard. It's surprising how much goes in it nightly.

Your patrons are trying to express their gratitude for making their evening enjoyable. This is the traditional way to do that, and who are we to argue tradition? They will do it with or without a "tip jar", so go pick out a nice one.