When I went to Easter Island, I only saw them used for dances.
I must say that the “they had cloth, why would they wear grass” argument only holds up if there is no function for which grass is better than cloth - not saying this is the case for grass skirts (I highly doubt it), but the Japanese had lots of lovely cloth but historically the traditional raincoat was a grass cape.
The area of PNG where I lived was that blank area in the middle where there was no map. I always thought that was kinda cool. They were not wearing cloth until the second half of the twentieth century.
::Relevant to thread::
“Maka-Maka” 
::hijack::
Related to “muckety-muck”? (a plausible guess)
Yeah, that’s my guess as well.
Hey, Leo Bloom, try your Google-fu! (You tried it when I used the word “brilloquacious” a while back!) 
From here: Hawaiian-English concordance:
From this, the colloquial slang was probably derived. (ETA: Perhaps furthered by the similarity to “muckety-muck” 
)
From Urban Dictionary:
Just trying my hand at amateur [del]entomology[/del] etymology
I lived 2-1/2 years in Honolulu, and grass skirts are strictly for hula dancing.
Hawaiian shirts, on the other hand, are often de rigueur in everyday life, for formal and informal occasions alike.