I second what John Masciale says. Having come from a background of multiple instruments (sax, guitar, piano, balalaika, fiddle) I find it easy to play in different keys on the banjo, either by using different fingerings or by re-tuning and then using different fingerings. I don't understand all the hoopla about how instruments are stuck in only one or two keys. I hear this a lot, especially among traditional musicians in old-time and Irish music circles. It's not the instrument that is limited, it's their playing style.
For banjo, having the thumb string be the root or the 5th of the chord of course works best. It doesn't limit it , but most hobbyists find it easiest to use it in the "natural keys". Fretless are best when utilizing open strings, so it does limit it to a narrow set of keys. It's just what works best...to let the old banjo be a banjo.
I agree that some instruments "work best" in certain keys, but with the right technique they can be played in any key without too much difficulty. I brought my Boucher to a blues jam the other day and it actually worked out pretty well.
When I was trying to sing more, I would often find that the key that worked best on Briggs' tuned banjo for the instrumental break was not the best key for my voice (no key really is!). I would switch back and forth.
I'd sing the verse in 'D' or 'G' and play the instrumental break in the other. Oddly, I found (or at least I thought) that it worked fine that way. In fact, I thought maybe the change helped in some cases.
Indeed John! While I love the sound of open strings on the banjo, I certainly agree that closed fingerings allow much more flexibility on the instrument (especially 4 stringers) and would have been a highly valuable technique for working musicians who needed to play with ensembles. For example, I can play much of the oldest banjo material such as Old Jonny Booker, in any key using the exact same fingering position simply by sliding a closed position bar chord up the neck, no retuning or sliding of bridges necessary.
ANY melody can be played on the banjo. Using the dactylic rhythms on the open thumb string within the arrangement brings out the character of the banjo....making it unique and difficult to copy on other instruments. I think that is a huge source of pleasure and intrigue for those drawn to the banjo.
If you guys haven't tried playing the A and B parts of Injin Rubber Overcoat over a 12 bar blues, you're missing out on the hilarity. Here's a link to a blues in E major (one of my banjos is tuned to E low-bass).