In my own experience, learning theory has helped me become a better musician. I have studied theory in one way or another since the age of 3, when I started learning to read music. I knew all my major and minor scales and chords by the time I was 8. Knowing the terminology helped me communicate with musicians who were more advanced players than I was. Theory opened more opportunities. When I was in high school, I was asked to accompany a small baroque ensemble and was suddenly thrown into making up a part based on a bass line with figured bass. I had a 5 minute crash course on figured bass. I wouldn't have been able to make heads or tails of that if I did not already know my intervals, chords, inversions, keys, or what "diatonic" meant. Theory has helped me be a better performer. In jazz music, it helped me focus my choices in improvisation. In classical music, it particularly helps with being able to identify where the melody is and where to accentuate tension, etc. As a composer, no matter the style of music, understanding voice leading can help one write better lines that make the music more understandable and enjoyable for the performer.
Despite all that, I have heard from other musicians, even some composers, that theory is useless. I have heard two main complaints: 1) it is boring, 2) it kills creativity.
Analysis is boring! Rules kill creativity! That is not a problem with theory, but rather a problem with how it is taught. I love theory and have a natural affinity for it, so I didn't mind when it was taught in a boring way. I was making the connections in my own mind despite the class. However, in college I was taught theory in an analytical way, where we broke apart pieces into all their little bits or examined disconnected exercises to identify all the non-chord tones. This turns making art into a chore.
Where I went to school, theory was taught as rules. "This is how music sounds good." Rules kill creativity because they can cause one to think that, in order to write well, one must do as the "book" says. Fortunately, this was not my inner reaction to theory. I am one who enjoys learning by observation, so regardless of the situation, I like to watch how other people have done it before trying it myself, with my own take on it. That is how I approach theory, but I can understand why others might see it as a step-by-step manual.
Theory is descriptive, not prescriptive. It only tells us how others have arranged notes. It does not tell us how we should arrange our notes. If enough people are doing the same thing around the same time, a pattern for an era develops. Unfortunately, these patterns of development are often taught as rules about "how music works." I prefer to think of it as "music arranged this way creates this effect." Composers continue to discover new ways to use notes to create new effects. If one understands that theory only describes the development of music, one realizes that theory expanded through the centuries and is still expanding.
I teach music theory to high schoolers. I make it very clear that I am teaching them Basic Tonal Harmony. I make it clear to them that music theory goes FAR beyond what I am teaching them in the classroom, but that we have to start somewhere, and we are starting at BASIC. What I am teaching them will help them in most of the music they will play (most are not going on to careers in music), but also provides a foundation for further study. It is not the end-all-be-all. I also teach theory in a way that is NOT analysis. I teach theory in a setting that involves composition. The kids are using what they learn in class to create their own small works, from melody-writing to chord progressions, to voicing. In my opinion, music theory means nothing if it is not a practical springboard for one's own creativity, whether in performance or composition.