Good answers from everyone. There's another thing to note, as well, though, since the OP was mainly speaking about music.
There's several types of RP on Landroval.
The "light" RP and music events are just that, and people won't have a problem with someone standing, watching, or even dancing. I would avoid the flirting, since in-lore, dwarves wouldn't do it, and out-of-lore, as folks mentioned, it can come across as creepy to the players. Waving and hailing should be fine.
The "heavy" RP type, though, it's a bit iffier on watching. If you see characters in a side room at the Pony, or if they're gathered and having a large conversation, then disrupting that can be seen as rude, especially if you do things like dance on the table they're sitting at. I have had non-RPers come across me and others in places we've been RPing and they send a /tell of 'Wow, I'm enjoying the story.', so I don't mind folks who stop and watch/read the story, as long as they don't get disruptive.
Favorite Dev Quote from 2009: [b]Graal:[/b] The lack of an instant threat catch up skill is one of the differences in tanking between Wardens and Guardians, just like Wardens dont have a easily used forced taunt. It is unlikely, but not impossible that this will change. Bottom line...Dont die.