As far as I can tell, the point of the label "open-mic" is that it gets around the qualifier of "folk" or "trad" or "singer-songwriter". The onus then is simply to choose good songs and perform them well. Sure, there are people who are hardcore trad-folk/rock/country/whatever fans who don't want to listen to anything else. But most people just want to hear good music, whatever the genre is. To that extent, Diane's right. If you want trad folk, call it trad. If you just want good music, don't bother trying to label it.
It also provides some kind of answer to the question of whether the evolving folk environment is alive or not. As several participants in this thread have said before, their definition of "trad folk" (or sometimes just "folk") is that the songs have been passed on by hearing other people play them. Unless we want to fix this definition at some date in the past, genre-free singing is the only way that new work gets included in the tradition. Ewan McColl didn't consider music-hall to be traditional - these days though it probably would be by most people, because the music-hall songs surviving in current repertoires have mostly been passed down by word-of-mouth from parent to child (or grandparent to child) over three generations. Give it another 20-30 years and Cyril Tawny, Eric Bogle, Jake Thackray and Tom Paxton will probably be there too. Dick Gaughan and Steve Knightley have both had problems with people attributing their songs as "traditional" on recordings, which robbed them of royalties.
Round our way, I don't know anyone who thinks open-mics will make them pop-idol stars. They sing because they can't not sing. Mics simply let their voices be heard without artificially modifying their voices to project (by adopting either the full-on plummy classical tone or the nasal trad-folk tone, both of which are equally artificial). And it's not just kids - I had a couple of 70-plus friends who couldn't be heard from more than 10ft away without artificial assistance. "Leaving Nancy" still leaves me emotional because it reminds me of one of them, who died a couple of years back. Sure, he wasn't the greatest singer, but he deserved to be heard.