Tootler,
The first definition you gave is certainly the one that is applied to the music that is, and always has been (since documentation began in 1896) referred to as folk; your second definition invariably comes with a prefix, (religious and scientific feature in my dictionary).
The general definition is the one that has been used up to now to identify and document the songs, music, lore, traditions, dance.... that we have referred to as 'folk'. To use the term to squeeze in your own particular tastes in music is, to my mind rather sleight-of-hand and makes it meaningless (as it has become in some folk clubs).
It's rather like the man who went into a shop to buy apples, and got home to find he had been given tomatoes. When he went back to complain he was told "Well zur, round yere we calls them-uns love apples".
Technically you are right - both of the definitions refer to communities; but it is the general one that identifies the music (and all the other related materials) as folk.
The arbitrary widening of that definition takes away my right to choose what I listen to when I pay at the door of a 'folk' club, or buy an album, or a book carrying the label 'folk'.
The music we refer to as 'folk' came from definite, identifiable origins and it developed a unique form - 'folk music/song/dance/lore/custom' is the label we have used to identfy that form up to now and that term continues in the field of documentation (and in many 'folk' clubs).
Even the communities that produced our folk music have their own definition and literature (The Village Community, Lawrence Gomme (one-time pres. of the Folklore Society), The Farm and The Village, George Ewart Evans... many hundreds more). Works like The Ballad and the Folk (David Buchan); Ballad Country (Madge Elder); The Ballad and the Plough, David Kerr Cameron and Living With Ballads, Willa Muir, not only documented the communities, but also the part played by folk songs in their natural settings.
All of this is what gave us the music I have been listening to as 'folk' for nearly 50 years and which I researched and collected from Travelling, Irish farming, London-Irish and rural English communities for over 30 of those years; a music which was and still is instantly identifiable, both by me and by the people who sang played, talked about and passed on to us.
Jim Carroll