Members of The Academy vote on nominations and awards. There are incufficient members of the recording folk music community willing to pay Academy dues in order to become members, and vote for good folk music recordings. It makes the traditional or contemporary folk categories a lucky crap shoot to get good and varied music voted on, and awards ususally go to very well known names or high profile - like the "Oh Brother" soundtrack (a lucky break last year, and a huge boom in bluegrass music awareness). I'm glad the Marcy and Cathy made it though - it should bring some noteriety to them and good children's music besides the usual Disney stuff that wins.
Overall though my feeling is the Academy Awards is nothing but more big business crappola that we could do without.