Funny,Lonesome, the first thing that I thought of when I read the title of your thread was that the first step in the folk process is:

1. Singer can't remember the words.

Clearly, you've given a lot more thought to this than I have.

I guess I have more difficulty seeing the process outlined as starting with a song that was written for strictly commerical reasons, although I know that it happens. Folk Legacy records had a line of albums which they considered a "New Tradition." I see the value of carrying on a tradition as paramount to songwriting. Of course, there are exceptions to everything, but I see folk music first as self(and next door neighbors)entertainment. If something written commercially comes to fill that role, then I suppose one (or two) could call it a folk song. I'd probably call it a popular song with a mighty long run.

Jerry