I think that they can, sure, it all depends on the perpesctive of the person.
1. The example you used was a great one. Glee did a fucking pathetic job with "Highway to Hell", and depending on how much you enjoy the song, it can ruin it for you, sure.
2. Theres another school of thought though: it can make you appreciate the original song even more. Aren't you thankful for the fact that it was AC/DC wrote and came out with the song first rather then say, the Glee cast? Its the trite but tride and true saying, seeing a glass as half full, or half empty.
It also depends on the song. When Seether re-worked "Careless Whisper", they did so as a joke. They said iot wasn't generally their type of lyrics, and they wanted to see what would happen if they added a harder edge to it. The result? According to Rolling stone, the #5 cover song of all time. There are bands or musicians that can, third school of thought, can take the song and enhance it, making it better.
3. My best example of this would be Gary Jules' reworking of Tears For Fears "Mad World." Let me first say I love Tears For Fears. The lyrics to this song are freaking amazing. But the quasi-techno music they added to it DONT match the tone of the lyrics. Enter Gary Jules. The haunting tone of the music matches what is a very dark song. In this case, I feel, he took a song, covered it, and made it better. Ill let you listen to the two and tell me which is better.
http://www.youtube.com/watch?v=3gFl2OXySs8
From the chorus on, its as if Kurt Smith is singing it in an upbeat way. None of these lyrics are upbeat. Wouldn't guess it by the music, or the way its sung. Now here's Jules version.
http://www.youtube.com/watch?v=4N3N1MlvVc4
To me, he took great lyrics, and the music along with the haunting way in which he sings it makes it far better then the original. All a matter of perspective, and the song itself, I suppose.