As Groundhog said, the curve at your particular school can vary greatly and determines your class rank. Your GPA could place you anywhere from the bottom 25% to the top 25%. However, you are probably ranked somewhere in the middle along with the majority of your classmates.
If your GPA is the only
reason you are considering dropping out, then I would say NO, don't do it! If you hate law school (sounds like you don't) or are resolutely against anything other than a Biglaw/federal job, that's a different story. But dropping out over a 2.9? No way. You have many good opportunities still open.
That said, here's some reality:
With an average GPA from a non-elite school you are almost certainly not going to be in the running for Biglaw, a federal position such as US Attorney, or a judicial clerkship. Those jobs are crazy competitive, and that's just how it is. I have no idea where you are located, but you may also have difficulty moving to another major city outside of your immediate geographical location. In other words, if you are ranked middle of the pack at University of Oklahoma that's probably not a big deal when you're looking at local govt and midsized firms in Tulsa. It is
a big deal if you want to move to LA or NYC.
So, what you're realistically looking at in terms of post grad employment are small firms, local govt agencies like DA/PD (although these can be very competitive), and maybe midsized firms. If you can be happy drafting wills, reviewing contracts between small businesses, and defending DUIs, then great. If that is anathema to you and you will only be happy with the prestige of a big firm, well . . .
The vast majority of people are a bit shocked when first year grades come out. You work ten times harder than you did in undergrad, and you get Cs and maybe Bs. It's brutal, but that's law school. Don't feel bad about it, just recalibrate your goals and expectations.
My experience with mediation and arbitration has been that lawyers acting in that capacity are usually pretty experienced. I've never heard of someone getting into either field straight out of law school, but I could be wrong. Arbitrators are often retired judges, mediators are usually seasoned lawyers.
If you can participate, why not? You may get lucky, and at the very least you might make some contacts.
I really lack perspective on what grades are considered good, bad, or just average. So do you have to get a C to be considered in trouble?
Again, it really varies from school to school. LOTS of law students get Cs, which isn't necessarily bad. Remember, Cs are supposed
to be average! The absurd grade inflation at undergrad programs has given everyone the impression that you're supposed to get a B for showing up. Not in law school. It's all about class rank, though.
Keep in mind that your grades will really only matter when it comes to getting your first job. After that, employers want to know what you've been doing with your degree, not what grade you got in Civ Pro. Do what you need to do to get a job that allows you to build up some experience, and use that to build a career block by block. Your first job doesn't have to be your dream job, it's a stepping stone and an opportunity.