Bugger it, I'm agreeing with too many people here. Diane is right, up to a point, and Dave Polshaw has neatly cut to the nub of the issue, while Tom has come in with a possible solution and Richard has warned of the dangers of of over-sophistication.
The heart of the issue, though, is how we as 'keepers of the tradition' or whatever pompous term you fancy, appear to the majority for whom that tradition is unfamiliar.
And the bog-standard folk club simply doesn't cut it as a shop window for trad material. I know there are thriving clubs, but compare them to open mic evenings, poetry slams; performance gigs of all sorts and you'll find that they make up a tiny proportion of the performing arts in the UK, and a declining one at that. As a mass phenomenon and as a young person's 'thing' folk clubs have had their day and are going the way of Jazz and Skiffle clubs. A few beacons of brilliance will be left as places of pilgrimage for the true believer, and others will simply fade and and wither into mediocrity and extinction along with their clientele.
Festivals are another matter - a lot of festivalgoers are attracted by the names of those they've seen in concert or whose reputation precedes them. They also attract many more youngsters, and there you do see some crossover in sessions and singarounds between old farts like me and younger performers. It's from there that the younger talent comes - young players who pick up their tunes from sessions and who may never have been to a folk club in their lives and improve then and try to get them right, as Richard says. And presentation does matter to that end.
As Diane says, it's the effing 'f'word that puts people off. Traditional material played well and with imagination is still traditional, whether you call it roots, ethnic, world, celtic (a real hate of mine, but still...) or indie/accoustic. The music that friends of mine like and appreciate isn't 'folk' in their eyes - yet. OK, Tim van Eyken, Bellowhead, Karine Polwart may be folk to us, but I think it's excellent that they can slip under people's prejudices and undermine them from within.
And all of them play supremely well and, yes, they are professional. All of them, however, have done their journeyman work at sessions, and still do when they get the chance. It's not 'us' the poor downtrodden amateur and 'them' the slick superstars - we're all part of the same tradition, and maybe we amateurs should show some of the same respect and dedication to the material that the pros can muster.
So, no personal attacks - just a fervent love of the material and an exasperation at the way that a great mass of the 'folk' world seems incapable of looking at itself critically yet dispassionately. If ity can, then I believe it will be able to engage coherently with the media and attempt to shrug off the stereotypical image as Tom has suggested. Until then, idle hacks will just see the endless beards and tankards.