My understanding is that this is a problem that had to be dealt with but that many facilities are capable of dealing with labels on glass bottles. In other words, it is likely to depend on the facility in your area that is actually processing the glass as part of the recycling process.
Most of the material that I find on the subject tucks away the fact that labels can be left on deep in the material. A couple examples:
http://pages.uoregon.edu/recycle/after_collection.html#glass in the third paragraph highlights that the plants can handle some contamination.
http://www.dnr.state.oh.us/Home/ToolsandResources/GlassRecycling/tabid/17878/Default.aspx mentions that the labels can be left on in the last paragraph but states that other contaminations (cap rings and metal) need to be removed.
http://www.santarosa.fl.gov/news/factsheet/glass%20recycling%20final%20draft.pdf at the end of the second paragraph says that labels can be left on. (Though this pdf may be a special case since this sounds more like a downcycle
than recycling)