I think the term "source singer" is a very useful and accurate term. Though like all words which cover a spectrum of meanings it is easy to poke fun at the use of the word by looking at the ends of the spectrum it lies on. We all know there is a difference between red hair and brown hair. That does not mean that that an intermediate shade may not be difficult to define.
    I would use the term source ssinger, and I would have thought its normal meaning is pretty clear. Joseph Taylor was a source singer. Now, a Benjamin Britten or Martin Carthy will turn up, hear the recording(or meet the singer), learn the words and tune and re-arrange the song into something else. To use the river analogy (bashed well to death so far in this thread) the songs roll slowly along the stream like nuggets of gold. Then someone hoicks them out after a few million years and makes them into ear-rings or sovereigns. Whether this is an improvement can be a matter of contention.
   Now, the Folk Britannia series definitely presented a view of folk music that evolved, from its rough and ready "source singer" apeman origins into fully-fledged homo sapiens folk-rock, singer-songwriter on stage at Cambridge perfection. Now, if you take that view of folk music, then "source-singer" is a derogatory term, because the implication is that the source singer provides the raw material from which the clever artist makes something worthwhile. And possibly those were the lines that Norma Waterson was thinking along? But I do't know, I didnt hear the discussion. But I do know that kind kind of derogatory use of the term(or concept) is not unknown...I remember an interview with Mary O'Hara many years ago when she basically said"nobody wants to listen to the old shepherds and sailors' versions any more, they want proper arrangements". And her turn of phrase implied she agreed with that judgement. In the context of that sort of stance, the "source singer" is indeed being down-graded.
   To me, as unrepentant worshipper of traditional folkmusic, "source singer" is a term of high honour. But it is undeniably true that in some people's mouths the term is a put-down(very like Lenin's description of the faithful toilers for the revolution as "useful idiots").