I think it also depends on your situation. I live in Edmonton, in western Canada, and there aren't many people in this city singing traditional songs. So I don't have the opportunity to pick up traditional songs by ear.

That being the case, if I want to learn new songsI have two choices: (1) listen to CDs (Martin Carthy, Nic Jones, Coppers, Bert Lloyd, Kate Rusby, Martin Simpson, James Keelaghan - I've picked up songs from all of them), or (2) Buy books of old folk songs with the tunes in dots, and figure them out from there.

It may be true that the dots are a song collector's interpretation of what they heard - but the same goes for the CDs. So I use both methods. Also, if I hear a song on a CD and like it, I tend to check online or in a book and see if I can find a copy of the tune (dots), so I can see what the musician who made the CD did to it. Often, I find that they made up a new tune, or played around a bit with the old one. Gives me more choices.

Just to clarify - I don't sight-read well, but I sang in choirs as a teenager and learned to use the dots that way. I can't translate the dots into guitar melody lines - I have to sing them to myself first and then transfer that to guitar. Or even better, get my wife (who plays piano by the dots) to play them for me, and copy what she's playing.

Again, if I lived in a city that had more of a living tradition I might do it differently, but I don't.