I am not sure either that there has been a demise of folk music, except in the popular culture sense, ie Kingston Trio and PPM. WEe host a house concert series and the majority of the music is what I would define as "folk", or roots or traditional or country or....
Bill D. mentioned that folk songs used to be "about life" rather than a song fo a diary. Agreed. If you want the "about life" thread try cowboy poetry. Maybe that's where it has gone, or shifted, as it is certainly becoming popular.
Alos have to look at demographics and the shifting age of those who listened to "folk"
If there has been a demise I would put part of the blame on the folk police---those who berated festival organizers with charges of not booking the "proper" acts. Those who would say, "you really mustn't sing that song that way" or "I have a much better version than that", those who so narrowly defined "folk" that it simply became a pain in the ass to listen to their unaccompanied wailings of some obscure English ballad that no longer had any relevance to today's life.
That being said I still like a cappella ballads, but it can all get to be a bit much with some folks.
I could go on. What most folks want is to be ENTERTAINED with music. Nothing wrong with that. That's what has kept it alive, that and folks like Bruce O and Mudcat who keep the music acessible.
Cheers, Richard