I think it depends on the effect you're after, the context, and personal taste. When I was at school, my clarinet teacher arranged one of the Brandenburg Concertos for clarinet choir and it sounded fantastic (it was the one originally written for all strings - I think it's number 6 but this is a long time ago and I've forgotten, so forgive me if I'm wrong). Bach was an innovator in his day and I personally believe that if he were alive now, he'd still be innovating, using clarinets himself, and would probably have enjoyed the arrangement! However, I do understand the need for authenticity in performance too. At university we were encouraged to thoroughly research the history of the pieces we were learning, and to use the correct instruments, ornamentation and performance conventions wherever possible. As long as you keep in mind what you're doing and why, I think it's fine to play music in both its original form, and in modern arrangements. When we did the clarinet arrangement of the Bach, it was on a residential weekend and it was just for a bit of fun. If I were to arrange a concert and I wanted that piece to be included, I'd probably go out of my way to organise the 'correct' version. I'll probably be criticised for saying that I think both practices are commendable in their own way, but if nobody ever transcribed/ arranged things for other instruments, some instruments would have such a limited repertoire, it would be a shame. Lots of saxophone studies, for example, are taken from oboe/ violin pieces, as it's a relatively new instrument and it seems a shame that there's no really old music written specifically for it. I've found it really useful for technique and stylistic awareness to play Baroque music on the clarinet and saxophone - there's so much to be gained in terms of ornamentation and expression for a start - but I do bear in mind that the music wasn't originally intended for them.
In short - I think it's fine to play what you like on your choice on instrument(s) as long as you keep the context and reasons in mind, and are careful not to cause offense, e.g. by forming a 'Baroque' orchestra for formal concerts and including a clarinet/ sax section!!