To me, I'm dressed-up when wearing my good jeans. :)
We don't play 'out' a lot. That said, being porch players of mostly Appalachian old-time music, we dress in clean jeans and, lots of times, t-shirts. Actually, we have a lot of very cool music-themed t-shirts, some of them painted by a good friend of ours.
If we're playing a wedding, though, we dress appropriate to the occasion and do not wear clothes that would draw undue attention to ourselves. I stick with nice trousers for myself, though, too, because it's easier to position either lap dulcimer or bowed dulcimer without much fuss. Also, pockets are very handy to have for picks, noters, rosin, whatever.