I think I must be lucky - I can play by ear but I can read as well. The reading is frankly rusty because I don't do it very often. I have a few "melody + chords /lyrics" books around for all those songs everyone know the first line to, but I only use them if I have to for requests.

For "popular" stuff I prefer melody + chords to full transcriptions, especially given that theres an awful lot of dodgy transcription out there (have a look at the sheet music to Diana Ross - Why Do Fools Fall In Love - its just the Frankie Lymon version with Diana's piccy on the front - and even then its still wrong!).

If I may be so bold, a related topic about how we remember tunes.... I find once I know a song properly I can usually play it in any key because my brain seem to remember the song in a "start here and then the changes sound like this". Even stranger, I play bass pedals with my left foot and even if I totally lose the plot with my hands and cant remember the tune I just keep playing the bass line until the rest of me catched up! Wierd or what...