Songs by bands that mention other bands in the lyrics or the title directly
 

Right now I can only think of:

Le Tigre - Hot Topic
LCD Soundsystem - Losing My Edge
Pavement - Range Life

Any others?

Bikini Kill - Thurston hearts the Who

Jimmy eat world - Authority song "The DJ never has it, JAMC Automatic."
Xiu Xiu - Ian Curtis wishlist

Only ones I could come up with right away.

Half Man Half Biscuit - Joy Division Oven Gloves

can't remember who it is but the song mentions listening to sufjan's michigan or illinoise, can't remember which either

yeah thats actually why i picked it as my user name back in 2005.

I think MIA namedrops the Pixies in a couple of her tracks.

The Wombats - Let's all dance to Joy Division

Awful, awful song.

Ciccone Youth - Two cool rock chicks listening to Neu!

Human League - The Things That Dreams are Made of

(Norman Wisdom, Johnny, Joey, Dee Dee, good times)

Xiu Xiu - Hives Hives(The Pogues)
Xiu Xiu - Ian Curtis Wishlist

The Replacements- Alex Chilton

sucidal tendencies mention suicidal tendencies alot

SY - Crème brûlée (Neil Young mentionned in the lyrics)
Neil Young - Borrowed tune (reference to the Rolling Stones, off course because the tune is directly borrowed from Lady Jane)
Badly Drawn Boy - You were right (references to Madonna, Sinatra, Buckley, Cobain & Lennon)

Cat Power - I Don't Blame You(Smog)

fish & sheep - keiji haino's haircut

Scissor Shock - Merzbow Tear Jerker
Scissor Shock - Johnny Merzbow's blah blah blah

sy - madonna, sean and me

Threre's so many...

sarram mentioned Pavement's "Range Life" and it made me think of their "The Unseen Power of the Picket Fence."

Sonic Youth - Screaming Skull

Okay, trying to think of these, I went waaay back...
Deep Purple - Smoke on the Water "Frank Zappa & the Mothers"

I don't know if you saw Conan with his "strike beard" haha playing his strat the other night. In the little video segment he was walking around with a guitar and an amp strapped to his back torturing NBC staffers with the riff from "Smoke on the Water."
A jam of Radiohead's "Creep" was fun, as was a hilarious version of Beastie Boys' "Sabotage" while singing it like Edith Bunker (Jean Stapleton from classic TV's "All in the Family"). During this brief shot of him playing down a hallway, an actually good-sounding snippet of one of my favorite songs to play, "Purple Haze," could be heard.

Sonic Youth - Hot Wire My Heart