You've seen extreme race shots of riders hanging off their machines like monkeys, but while it helps cornering on the racetrack, it's not necessarily the optimum body position for street riding. A more centered riding stance may not look all that cool, but it will give you increased confidence and control in a variety of situations. For most cornering, you should be centered on the seat and leaning with your bike so that your head is either on or just to the inside of the centerline. Tilting your head to match the horizon stops your brain from getting confused by mixed visual and balance signals. If your controls don't fit correctly, adjust them to match; never adjust your style to fit.
Keeping your inside elbow locked and using the weight of your upper body on that arm to countersteer is a common lazy habit. This prevents you from making small steering corrections and limits your control of the motorcycle; in addition, any bump in the road will unsettle your upper body, and that movement will transmit directly down your locked arm and into the bar-unintentionally steering your bike. It's important to remember that the handlebar is more for steering your machine rather than holding onto it. Experiment with holding your body in position using your stomach muscles and pressing your outside knee against the tank while keeping your elbows bent with as little weight on the bars as possible.
Using a centered riding stance puts your outside knee in the correct position and helps distribute your weight properly. If your bike has low clip-ons, it will require substantial knee pressure to unweight them; try variations until you find something comfortable. With as little weight on your arms as possible, you'll find it much easier to make small steering corrections, and bumps will unsettle your bike less as your weight has a reduced effect on steering. Also, experiment with foot position to find what works for you; it's usually best to keep your toes on the footpegs, especially the inner foot to avoid dragging. If you like to use the rear brake (RSS, April 2000), keep your foot as far back and tucked in as possible.
There are instances where some hanging off helps with maneuverability or traction. For instance, on wet or slippery surfaces, moving your body to the inside of the turn will allow you to keep your bike more upright to take maximum advantage of the available traction. And during quick countersteering swerves when you're avoiding an obstacle on the road, keeping your body upright during the entire sequence lessens the amount of mass you have to throw from side to side, and lets you push against your bike using your own inertia. Body position has a significant effect on your bike's handling, and it's well worth trying different techniques to find something that gives you more confidence as well as comfort.