I disagree that folk music doesn't often invoke the legendary thing. I think folk music has done it ad nauseum, perhaps more than most music genres.

I think use of the word to describe musicians is, as others have stated, a marketing thing. The word being used to describe Dylan has to be the most overused, despite the fact that the Beatles truly kicked his ass out of the ballpark in terms of popularity, musicality, and lyric writing ability.

It is curious that music has so overused the marketing term, I agree. I think that has something to do with the delusional belief that music is a more spiritual art form than all the others. Musicians have long used this "legend" to get laid, which is a tad ironic, don't you think? Especially for such an emotionally overwrought art form? ;-)