I do not think it is about "life music is better". Life music is an event and people are part of this unique performance. Thatīs doubly true if they interact (sing along, whistle, hum or clap). That is something a recording - no matter how perfect it may be - cannot provide that.
Your approach of warming up is probably one of the best.

This guy offers some advice about playlists, practice and list that can be played with a limited number of accords: https://www.youtube.com/watch?v=n9FIrror1a4 (to avoid unpleasant surprises: heīs performing "Horse with no name")

There are also some songs with a concept of promoting participation:
The limerick song (Some versions are appropriate for all audiences, some not so much), this version seems to be fairly non-offensive: https://www.youtube.com/watch?v=4znGvVBlwr0
The engineerīs drinking song (several versions around, maybe not ideal while children are present, may get as clean or dirty as the audience wants)
Kiss me Blarney Stones (designed more for adult audiences, not the best choice, when ladies are present; BTW: there is a recording that extends over an hour)
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