" it is the merit of the song that is important"
Important to what - certainly not whether it is a folk song.
'One Fine Day', is quite a good number, don't think Puccini ever called it a folk song.
"I am quite happy to sing the occasional modern song"
After a quick shufti through my repertoire book, I find I have around 60, - qite happy to sing them all if the occasion arises.
"Lloyd took a poem about a recruited ploughboy"
Would be grateful if you could follow this up Richard.
One of the things that has always struck me about the argument that Lloyd 'composed' it is the song's form.
The last half verse is typical of songs where the source singer has forgotten part of the song and gave just what he or she remembered.   
"which included many recordings of songs with known composers"
True - I think Smith's collection included 'Wreck of the Old 97' which could be said to have had two known composers as it gave us one of the earliest known copyright court cases over a song that entered the tradition and was claimed by two musicians.

"In 1927 it was claimed that the actual author of "Wreck of the Old 97" was David Graves George. David was a local resident who was also one of the first on the scene. He was a brakeman and telegraph operator who just so happened to like singing. He wrote the ballad after he was inspired by the tragedy that he witnessed,. In 1927 when a record came out by the Victor Talking Machine Company with "the wreck of the old 97" on it. David Graves George filed a claim for ownership. It was only on March 11, 1933, that Judge John Boyd did finally proclaimed that David G. George was the original author to the ballad. Afterwards Victor Talking Machine Company was forced to pay David from the profits that were made from the 5,000,000 records that were sold. David received an approximate $65,295. Victor appealed three times. The first two times, the courts ruled in favor of David. The third time it was reviewed by the nations highest tribunal. The supreme court of the United States decided to overrule the lower courts and again grant Victor ownership of the ballad."

The '54 definition reads: "The term can be applied to music that has been evolved from rudimentary beginnings by a community uninfluenced by popular and art music and it can likewise be applied to music which has originated with an individual composer and has subsequently been absorbed into the unwritten living tradition of a community", so it's not really "getting it wrong"
"Assuming you care about such things, or folk police as we call him err. I mean them..."
Don't worry too much about it Muskie - in that respect, your position is quite safe nad in your case, probably comes with a pension!
Jim Carroll