M.E., yes, things have changed greatly in the last 45 years ... not only in Crete, or Greece, but the world over! Think back... probably back in 1973 Seattle, you'd go to a roller rink, maybe a drive-in movie theatre ... at your local teen "sock hop" they were dancing to Chubby Checkers, or Dick Clark's American Bandstand. The world moves on!
Lee is very astute, you'll find "Greek nights" in many places -- alas, these are usually in very touristic "resort" areas full of package-holiday folks from UK & N. Europe, who want to see dish-smashing and Zorba music; there will be handsome guys in those skirt uniforms and pom-pom shoes (altho those are never worn in Real Greek dancing).
In Chania, if you stay at a small family-run place, best tip is ask the landlord; he may know where authentic dancing/ music if any, can be found. There used to be a swell place down a back street, Kafe Kriti; after 11 pm, old guys with mustachios would play lyra & bouzouki & clarinets, and guys (customers, not professionals) would dance in a line ... Alas the 2008-11 hard times closed it down. But now I hear there’s another place for Greek Folk Music & rembetikia – Adespoto. It’s between Sifaka and Melhisedek, in Maheradika area of Old Town. Two phone #s: Tel 28210 51582, and 6937151394. Ask your hotelier if it's still going & if so, ask him to phone to see if it’s a music night, and have him mark it on your Chania map. I didn't hear anything about group dancing -- but when Greeks get in the mood, it happens.
The BEST authentic dance performances I've been able to attend have been in NAXOS, and in ATHENS. In Naxos, a dance enthusiast discovered there were extensive local dance traditons, but dying out. She recruited village teens, had the elders teach them, and now every summer they give performances weekly in the courtyard of the Kastro (a medieval tower at the top of the town). And the BEST performances of all actally are at the Dora Stratou dance theatre in Athens -- Season runs from late may to early September. A troupe of about 24 incredibly skilled dancers present authentic dances, in authentic costume, from all over Greece - including some electrifying Cretan dances... the guys in those black bloomers & high boots! http://www.grdance.org/en/ -- if you'll be in Athens after crete DON'T MISS IT.