it is possible (and quite likely) to hear traditional material that by familiarity or institutionalisation has none of the spirit of folk (much as a prayer is muttered in a church service with no sense of the word's meaning) while hearing renditions that are historically inauthentic which are imbued with the essential matter of folk.

I tend to agree. If I had to choose, I'd say my version of Jones's Ale (with an extra verse nobody else had heard before) was more the real thing than the Pleasant and Delightful I once heard sight-read in note-perfect two-part harmony - it was very lovely, but it wasn't very 'folk'.

Where I disagree is that I don't think we do have to choose - for me, traditional material is all folk, regardless of how it's performed. The person muttering a prayer in a church is still helping to make something happen, however unenthused they may be as an individual. Someone who comes to a singaround and reads the words to the Wild Rover out of a book is still helping to make folk music live.