Context: I'm in a duo playing covers only, me+drummer, both sing, I'm using a PSR3000 as a midi file player and keyboard. I've another keyboard and separate bass pedals too. As the drummer practiced like crazy with e metronome and consequently can play strict tempo properly then I dont use the arranger function very often.

Heres my slant on some of the points..

Dead time: If people are dancing "freestyle" numbers then 5 seconds is dead, they'll all sit down. Any more than 1 second gap and I get anxious! You can say "if you want this go to a disco" but from our audience feedback they much prefer live performance (even if that is "Live over a midi file") to a DJ. Also so many DJ's like the sound of their own voices so much that you can't hear the song half the time anyway! At smoochie time you might get away with bigger gaps. If the audience isn't dancing at all then chat all you like just to maintain contact. We sometimes deliberatly use a big gap to force the audience to take a break. Incidentally we were once asked by the owner of an establishment to stop playing popular tunes so the dancefloor would clear and allow the staff to serve the main course of dinner!

For strict tempo / ballroom stuff gaps aren't such a problem as it is always a good idea to tell the crowd exactly which dance you'll be doing next.

Also, as a covers band, we have to give the audience what they want. It's their party, not ours.

As a classically trained pianist I couldn't play an arranger for quite some time. But now I've retrained my left hand and brain to think chordally, its not a problem.