"Berlin. I'm a foreigner here, and yet it's all so familiar," thought Marion, the trapeze artist, as she lay across her bed under the angel's watchful gaze in Wings of Desire. I knew how she felt.

Perhaps it's the Wim Wenders films or the industrial influence this city has exerted on anglophone pop ever since it was the divided, decadent home of Bowie, Iggy Pop and Brian Eno in the 70s, but when I arrived in Berlin the city felt immediately familiar.

I had come to see the showcase performance of Xaver Von Treyer's The Torino Scale. The DJ, composer and producer has impeccable credentials: he engineered for the likes of Einstürzende Neubauten and Rammstein before starting his own label, Supersoul Recordings, in 2006, whose output was picked up by DFA's Death From Abroad imprint.

His new project, The Torino Scale, aims to balance his passion for blending eclectic strands of electronic music with creative director Marek Polewski's innovative visual accompaniments. "We didn't just want a music video for each song, or pretty pictures with soundscapes," they wrote in their press release. "The Torino Scale resembles a futuristic opera using modern technology to enhance the audiovisual experience, without the sickening cheesiness of acted drama and despair."

This sounded precisely like the sort of ambitious and pleasingly pretentious art-meets-music curio that I'd expect to stumble across in Berlin. Back in 2003, Mayor Klaus Wowereit told an interviewer that his city was "poor, but still sexy", and it's an image that they continue to trade off: a welcoming home for the avant-garde. The press release continued: 'This concept will be extended with seamless live visuals centering on a showcase event at the überhip No.74 store.' I had no idea where or what that was, so when I arrived at my überhip hotel in Prenzlauer Berg I explained to the überhip receptionist that I was here for a gig and asked if she knew how to get to the No.74 store. She looked confused for a moment. "Do you mean the Adidas shop?"

It seemed that I did, but why not host a pleasingly pretentious art-meets-music curio in a shoe shop? Berlin couldn't stay 'poor, but sexy' forever. It had fluttered its eyelashes, smiled coquettishly and now the brands had moved in. Later I read a story in Der Spiegel titled 'A Victim of Its Own Success' which described the gentrification of Berlin and its art scene, and pointed out that rent in Prenzlauer Berg has risen almost 13% in the last two years. As I walked to the venue from the hotel, past hipster boutiques that could have been transplanted from Shoreditch, I saw a huge and intricate piece of graffiti by the artist SuperBlast. Several storeys high and covering the entire side of a building, it depicted a trio of figures: one held a can of spray-paint, another a banner with the legend: 'The Truth Maschine'. Below the title, however, was another circle of text: 'Thanks to Playstation'. Artists have to eat like everybody else, and in Berlin it seems that shoe manufacturers and game consoles are picking up the tab.

I arrived at the No.74 store, which had been cleared of its shoes and other wares, and found Xaver Von Treyer sound-checking. Later, I asked him directly about how Adidas had become involved in the project and how he'd ended up in this particular venue. He told me: "It's usually a sneaker store, and the PR agency looking after Adidas, Häberlein & Mauerer manage the store. Every once in a while they transform it into an exhibition space or event venue for specific art and music related things. When they heard about my idea for a live show in connection with my album they approached me and asked whether I wanted to do it at the No74 store. They offered something like a sponsoring to make the show happen as close to ideal as you can - including building walls for the projection, the video technology and everything else it would have been real hard to get off the ground. I am very grateful they funded this and without ever interfering with the content even once. They let us do whatever we wanted. For them it's a positive thing to be connected with interesting artists and content. Unlike other sponsorships I have witnessed it didn't feel corporate at all, it felt more like them being a patron of arts..."

East Berlin seems a particularly apt place to debate the commodification of art, given that it is from here that people literally risked their lives to join the free market of the West. To the south of the river from here is the fascinating Museum Haus am Checkpoint Charlie, which is less a rigorously-curated museum than a DIY presentation of a whole host of individual testimonies about escaping East Berlin. According to their records, more than 5,000 people escaped across the Wall between 1961 and 1989, and the museum is now home to a jumbled collection of hot-air balloons, submarines and plans for tunnels which helped some of them make the dangerous journey. At least 136 people are known to have died while attempting it, although the true figure is thought by the museum to be much higher. Incredibly, the museum itself was founded in 1962 and was used as a lookout spot by those helping potential escapees throughout the life of the wall.

The influence that art and music would have on Berlin throughout its years of division is strikingly evident. Along the ceiling in the museum's first room there is a wry quotation from Bertolt Brecht, who at one time supported the East German government but had a change of heart by the time he proposed this 'Solution': "After the uprising of the 17th of June, the Secretary of the Writers Union had leaflets distributed in the Stalinallee stating that the people had forfeited the confidence of the government and could win it back only by redoubled efforts. Would it not be easier in that case for the government to dissolve the people and elect another?"

After the Hansa Tonstudios were founded in 1964, West Berlin became increasingly attractive for musicians. In Jews, Punk and the Holocaust: From the Velvet Underground to the Ramones, the cultural theorist Jon Stratton attempts to explain the appeal of the city: "By 1976/7 Berlin was to become a strong attractor for punk. In these years Iggy and David Bowie live there and their albums Lust for Life, The Idiot and Low and Heroes were conceived there. In 1977, the Sex Pistols went to Berlin to escape the media frenzy in England… Berlin became an epicentre for, especially English, punk. The draw of Berlin for these artists is usually couched in terms of freedom, its decadence, the youth of its population. However, what is not suggested is that Berlin had been the capital of Nazi Germany. At this time in the late 1970s, it was still a divided and occupied city. Here, then, we may be getting closer to its fascination, a fascination that seems to start with Lou Reed's death-soaked Berlin."

This relationship between the reinvention/reimagination of Berlin and the spirit of punk goes some way to accounting for the strange fact that the world's only Ramones Museum is also in Berlin. The band who played 'The Blitzkrieg Bop' inspired such devotion in a young German named Flo Hayler that he eventually assembled so much memorabilia that he decided to put it all on public display. There seems to me to be an almost familial relationship between the DIY passion of the Museum Haus am Checkpoint Charlie and the punk spirit of the Ramones Museum, and either could be put forward as examples of Berlin's 'poor, but sexy' aesthetic.

However, even the Ramones Museum has to pay rent. Founder Flo Hayler, quoted in Susan Ingram and Katrina Sark's Berliner Chic: A Locational History of Berlin Fashion, praises Berlin as being "so big and cheap you can find your own niche and hide out and do your own thing", but warns that there's a problem: "we have too many creative people and no money. The artists don't make any money. But the people with money want to invest into that creative potential, and that's what happens in every city – it happened in New York in the 80s. We're right in the middle of it, and it's just a matter of time before everything's bought."

Which is where we came in: stood in an empty Adidas shoe shop with a producer who was falling over himself to get all his ideas across, while his team synced a series of projectors to screen 22ft high videos on three sides of the room. Xaver Von Treyer explained that they only had three songs and videos fully prepared, so the showcase evening would involve those three songs being performed together in a series of three identical fifteen-minute performances. The tracks they would play were: 'Electric Mist', 'Lunar Rover (Utao Okami)' and 'Love Is A Drum'. As he explained later, "For an event like this I wanted to feature the more pop-sensible material. Not all the tracks on the album are in that same vein. Some are definitely clubbier and some even more ambient than 'Electric Mist'."

Soundcheck demonstrates that he has assembled a great band, including Xaver himself on guitar, vocalists Jayney Klimek and Yuko Matsuyama, who both sing on the album, Sven Ulber on drums and Jan Tillmann Schade on cello. Schade is filling in for Arthur Hornig, who played on the album but is unavailable tonight because he had to return to his day-job as first cellist for the German Opera. Schade fills in seamlessly, and then regales me with tales of working with Nick Cave during the Bad Seeds' Berlin years while we wait for the audience to arrive.

The hipster crowd arrived promptly and didn't have long to wait for the first performance. 'Electric Mist', as chilled and ethereal as the name suggests, filled the space while on the walls around us coloured ink blots danced like jellyfish. The band were tucked away to one side, and unlit to the extent that the cellist had to wear a headtorch. It took only a moment for the audience to realise that they should break gig etiquette and ignore the band, which Xaver explained was a key aim for the project: "My general idea to shift focus away from the band is rooted in the urge to create a visual environment that surrounds the spectator, without being mere background decoration to the band, like VJ-type visuals. As stated in the press release, the music and the visuals are equally important, [and] who performs it is secondary. I do like the fact that the music happens live though... I could also see the thing as a permanent installation with a mixture of machines and people performing it in a loop during gallery opening hours, but that's the next step maybe. I have nothing against a good old school live concert but it excites me more to create a whole space for the music and art, rather than going onstage and just playing the music. It wouldn't do my approach to music justice; it would feel a little one dimensional."

He added: "I have seen a million rock bands and a million laptop acts and they all bore me a little by now, it all feels very formulaic. But when I see the installation work Warhol did with The Velvet Underground and consider it was over 40 years ago: that inspires and depresses me at the same time... I am not a fan of Warhol's work in general but I admire him for the fact he dug out The Velvet Undergound and financed their first demos, plus broke some new ground with their performance concept."

The drums kicked in for second track 'Lunar Rover (Utao Okami)' and I was suddenly a little disappointed that the spectacular visuals were only the backdrop for people doing the awkward art gallery shuffle and not a true Berlin dance-floor. Both the music and the laser-inspired video seemed to lend themselves more to a club setting, which could be another direction for the project to pursue.

Third and final track 'Love Is A Drum' is the hookiest and perhaps poppiest of the three. It's the visual accompaniment, however, that has the crowd murmuring and reaching for their iPhones. At first I wasn't sure why: while the video had obviously been filmed with a heat-sensitive camera, we're basically just watching abstract shapes coloured in like badly-insulated houses. Xaver clarified: "'Love Is A Drum' was a bit of a trip to film. I wanted to film two people having sex with a thermal camera. We thought about hiring actors to fake a love scene but it felt wrong in the context of this project, so we hired two adult film actors and, well, had them do it in front of the camera. Not really your typical porn action but rather just them enjoying each other as a couple would... Truly bizarre to be in the same room as two people mate. But they were very professional and in-between breaks we had a good laugh about it. Technically we hooked up the infrared cam to a TV and filmed off the TV with an HD cam. It looks like lava blobs dancing. I like that."

The audience seemed to like it too, and the crowd continued to buzz for the two subsequent performances. Soon after the third finished the police arrived, citing noise complaints, and by 10:15 the venue had shut down. The process of turning it back into a shoe shop began, and the Berlin crowd dispersed into the night chattering about the show. Regardless of his patronage, Xaver Von Treyer's genre-hopping musical experimentalism and visual innovation had given them a night that felt true to Berlin purely because it so eagerly reimagined what was expected of it. For Xaver, it was Berlin at its best: "I think the Berlin scene is a little lost in a vortex of trends and everybody trying to find new ones or desperately holding onto past ones. Even though I have been here since 1994 and have worked with a very broad selection of people I have never felt at home in any scene. The only thing I strongly relate to are open minded and professional artists, DJs and musicians. The evening was how Berlin can be on an ideal evening or event: cool and unpretentious people attending something that has tickled their curiosity, without anybody creating a hype beforehand. Just genuinely art and music interested people enjoying themselves, without having to prove to anyone they are the coolest."

Photos: Ailine Liefeld