But, I also tell students the bad news: basic grammar rules don't fly completely out the window in Creative Writing. Students must still attend to correct spelling and modifiers. They must use consistent verb tense (see post below). They must use correct punctuation around their dialogue.
And here's why: anything that distracts the readers, that leads them away from a plot or characters, isn't good. As writers, we should remove as many roadblocks as possible between the reader and the plot/characters. And poor basic grammar can be an enormous roadblock (especially to agents and editors!!). If the reader can sense that the writer does not have a solid grasp of the basics of grammar, the reader will stop trusting the writer. And that's a scary prospect. Because we writers need to gain the trust of the readers, so we can take them on whatever journey our imaginations have created.
I always tell my students that even if they have the most original plot in the world, the strongest characters in the universe -- poor grammar can destroy the effect. Confusing pronouns, misplaced modifiers, poor punctuation, incorrect spelling, shifting verb tenses -- these can be so distracting that the reader can't get past them to SEE that wonderful plot or those amazing characters.
Knowing how to use good grammar -- well, that's a vital tool of a writer's trade. It's the chisel and hammer to our sculpture (our writing), so we need to know how to use it well.
T.S. Eliot said it best, I think:
It's not wise to violate rules until you know how to observe them. (source)