Rabbenu Bachya in Kad Hakemach (‘Simcha’) argues that it is usually good to not be b’simcha. In fact, simcha is only mentioned in the Torah in connection to serving Hashem.
Having said that, perhaps the saying can be understood in that sense: as depression leads to sin, it is righteous to always be in a positive frame of mind, so that one will be safe. I would need to see the source to determine if Rabbi Nachman meant more than that, namely that one should be dancing in the streets at all times.