When I do songs with unacceptable lyrics, I simply say upfront that this is a problem for those of us who perform old-time music. I usually tell the audience that when I say negro or colored man, the original performer did not--they can figure out the rest.
In my case, the unacceptable lyrics come from the blues tradition, which poses an additional dilemma: Do I stay true to the vision of the African-American artist as originally recorded or do I censor the language? I figure that the best thing in most cases is to tell people I'm changing the language. In "Bourgeois Blues," for example, Leadbelly liberally sprinkles around the n-word, and I make sure that the audience knows where and when I'm changing the language. For Charley Patton's "Pony Blues," on the other hand, I simply omit the stanza that makes a pretty harsh distinction between light-skinned and dark-skinned black women.