Interesting discussion, all. Modern dress, intelligently done, can add a nice surreal angle to a classic story, thereby making it seem more timeless or universal (or more relevant to the times, as in the Mercury Ceasar, which may not have been the first modern dress Shakespeare, but it is probably still the most legendary). But if modern dress is done just to be trendy, as in Baz Luhrman's MTV Romeo and Juliet, the Shakespearean verse seems pointless. They might as well update the story and language as well, like West Side Story. Ian Mackellen's Richard III was a pretty well done flick, but exactly how "modern dress" is it when it's set in the 1930s? It certainly can't have any of the "immediacy" that Caesar must have had (one of the main points of modern dress, I would think). Branagh, in my book, sabotaged his Hamlet with too many cameos by American Hollywood stars. That's more jarring then any modern dress. And what about post-modern dress? Anyone see Julie Taymor's Titus? That's a Shakespeare film that looks like it could be set in a barbaric, fascist future instead of the past or present. That seemed to work better for me, because it seems more possible. Welles' Macbeth has the same post-civilization feel to it, although more subtle and ambiguous. Also, after hearing the eerie, science fictionish score for Welles' 50s stage production of King Lear, I wonder if he wasn't going for a similar effect there too.
That's an interesting point that class distinctions are not clear to modern audiences when the actors are in Elizabethan dress. Welles used a sort-of similar reasoning I suppose when he decided to set his Don Quixote film in modern times. The absurdity of Quixote's chivalric idealism become much more CLEAR that way. Everyone has their reasons. Unlike many of the others, Welles always seemed to have good ones.