Not exactly orchestral, but I think one of the few folk song arrangements by a classical composer that work for me is Percy Grainger's choral arrangement of Brigg Fair. I suspect it was because he basically understood the music and his arrangement was sympathetic to the original song.

As a recorder player, I have come across some diabolical arrangements of traditional tunes for recorder consort by people who just try to be too clever. On the other hand, I have also come across some excellent ones.