I do both...."read" and "play by ear." Most of you know I've been working hard on the piano for the last six months with certain practicing methods. One of the exercises I do is to take any song and arrange it in your head as you're playing it. i.e. One note at a time. After each note decide what you want the next note to be in your arrangement (or SHOULD be according to the melody). and....guess at where it falls on the keyboard. Then play the note and see if you nailed it.

I originally did it just for practice, but after months of doing this....a pleasant surprise. I found that my pitch recognition has improved 100% (well, maybe 99&44/100%). Paul (montunoman) said it in one of his posts....INTENSE CONCENTRATION is what makes it work!