It shouldn't be forgotten that the original meaning of 'folk music' was what we now call traditional music. The meaning has expanded to take in much more. That's fine - we can't stop language changing and common usage is what defines how words are used, not dictionaries.

I think the change of meaning gathered particular emphasis in the 1960s and in the USA, but then came over to the UK. 'Contemporary folk' as a term makes more sense there, where it is a natural evolution from traditional forms. I think the reasons there is such a dichotomy in the UK, and why the arguments can sometimes be so bitter, is that here 'contemporary folk' has no real connection with British traditional forms. Irrespective of the merits of the works of someone like Nick Drake or Incredible String Band, I can see little in them either in content or structure which relates to the forms of English traditional music which I enjoy. In its own way 'contemporary folk' is remote from my tradition as jazz or opera. Call it 'folk' if you like, everyone else seems to, but I'm not going to be predisposed to like it just because of that label.