Singing with eyes closed is not uncommon amongst the old singers of traditional ballads. It is sometimes part of a sort of cluster of mannerisms along with, for example, cocked head and clasped hands. However, what the old traditional ballad singers are doing is not exactly what modern folk singers in front of an audience are doing (other than the singing part, of course).

I can and do sing both ways.

Let me give a shot at trying to explain the closed eye thing.

The status of my eyes while singing has more to do with the intensity of the emotions I am experiencing while singing. If I am really into one of the old ballads I tend to close my eyes. The idea is to give all my attention to my to the song. I don't' want to be distracted by interactions with the listeners. When my eyes are closed it is not because I am afraid I'll be distracted and forget the words. It is because I want to focus entirely on the song. In a sense, it is a wall of sorts but my thinking is that if you're paying attention to me instead of the song, I'm not doing something right. It is not that I am not interested in engaging the audience, it is just that for some songs I am not interested in ME engaging the audience. I want the SONG to engage the audience (or not, if I blow it).