My most recent column over on showbizradio.net deal with choosing audition pieces.
In the majority of my experiences in smaller, local community theatre cold readings from the script of the show for which you are auditioning are the modus operendi. However on occasion I have had to perform a prepared piece of some kind. It can be nerve wracking at times, but not as nerve wracking as having to witness certain types of other actors deliver certain types of monologues. It can be cringe inducing, and it doesn't need to be this way.
Check out the piece to read my advice on what to choose, and what to avoid, when auditioning with a prepared monologue.