That's one way to do it. It's very common to map some buttons to mute/unmute parts. If you watch guys doing hardware based sets like with an electribe you'll see how they can squeeze several minutes of a track out of a single 4 or 8 bar pattern just by muting and unmuting parts. For instance imagine you have a single kick pounding away. At the end of 8 bars you could just mute the very last kick, which makes for a mini transition, and then you can unmute a hihat track which gets your song started. After 8 more bars you can unmute the snare track, and so on. Just being creative with the mutes can stretch out the arrangement a huge amount. Being able to play a single kick or snare by punching a button can also add a lot of life. It doesnt take much to keep a tune rolling along like this.
For more ideas, get yourself lots of knobs and faders and buttons and XY pads and all that kinda stuff. As many as you can, it's very important. Map the knobs to fx and such like you said, you are on the right track. Use buttons or your keyboard to start and stop clips.
It's really all about two things; the first is having lots of controls at your fingertips, so if you get an idea you just twist a knob or fade stuff in and out. Decide on some controls and practice so you know what they do without thinking about it. You want it spontaneous and simple without ever having to consider the technical wiring behind what you are doing, and you just jam and jam and you'll discover tons of creative ways to do this. If you have toi look up something about midi mapping in the middle of jamming you are doing it wrong. You'd learn a lot by watching people play and improvise on electribes and such. That is why they are so popular, plus the controls are fixed so you dont end up worrying about midi mapping, just getting on with the performance... The second thing to think about is preparing your source clips so that they are easily mixable and mutatable by the controls. This, I think, is harder and more personal. You'll need organization and workflow methods so that your material is predictable and quickly accessible. Nothing will break your flow more than having to hunt around for a particular clip, or having to check to see what the length of a particular bit is or what it actually contains. Im not an ableton user so i cant say too much on that.
Note that the traditional way of jamming stuff out on hardware is usually to have a single pattern with your material in it, like 8 bars or whatever, with all the tracks playing from the start, but some muted, and simply messing around with mutes and fx knobs. Possibly also a transition pattern or two with some more complex programmed fills. This is enough to arrange and perform a whole tune, just jumping between those patterns and messing with the mutes. Ableton gives you a bit more flexibility in that the clips can all be different lengths, and the follow actions can program mini sequences of clips, and scenes let you launch multiple clips at once etc. IMHO this is all very nice but might be a bit confusing to start with; people have been making killer tracks without this complexity for decades, so I'd strongly recommend looking into how tracks are arranged and performed on classic x0x machines, electribes, rm1x, the new roland aira, etc There are unlimited amounts of such stuff on youtube, and reading about how tracks are arranged and performed on them will be quite educational I think. Then you can start to see where the limitations are and what abletons features are building upon. Buy yourself an emx or something if you have the cash, well worth it