"Purely oral traditions might be dying out but different arrangements of songs/tunes are being made all the time. Does this count as part of the folk process?, and more importantly, as part of the transfer from one generation to the next?"

I actually think the Internet is, albeit at one remove, helping to maintain the oral tradition.

I have access, via youtube, myspace, spotify, emusic and lastfm, to hundreds of versions of any particular song. I can hear how different people treat a song; I can google the lyrics and compare different versions, and see how songs change, and make my own composite version of the words and/or tune.