" As part of my music degree i have decided to research to what extent text based representation encourages the transmission of Folk traditions."
Sam Hinton, the folklorist and performer from San Diego made an interesting point. The ballad Barbara Allen was out of circulation until it was revived in print.
" In other words, i would like to hear from folk musicians, concerning how they would go about sourcing a song... "
I think that the more you are exposed to the actual music, the more you understand what it is in the song when you see it in print. There is a musical tradition to be followed and absorbed in some way. I try to go to the root of the song as much as I am able. Sometimes through the history although that has to be cross-referenced as there are a lot of vague ideas that may not be correct. but my inclination is to find someone who has an understanding as a performer and absorb their approach...but not imitate it exactly.
" Another area i would be interested in hearing about is in how far it is acceptable or necessary to adapt and interpret a traditional song in your own way..."
The idea of "acceptable" would require an opinionated criteria which can be supported by some academics....but the word doesn't fit well in folk music.
"whether it is predominantly the words and the melody that convey the folk tradition and how important harmony is."
A song requires all of these things. Harmony is a problem for many because some like it simple and others can tolerate more complexity. The melody can be a vehicle for a story which by itself may be uneventful. A great tune can have a bowlderized lyric that's incomprehensible. A great simple tune can be as important as a complicated melody.
Answer, it depends.