Well Put, Barry.
You've done a fair job of summarising this whole thread.
It's fairly clear to me that Wordy (who has obviously been more successful than myself) and I are reacting in opposite manners to the same problem. I can only speak for myself from here on.
I believe that significant sales are quickly becoming a thing of the past. For one who has stepped away from the festivals in recent years, this is no big deal. Most of my sales in the past ten years were made in the hospitality industry where I'd get a three or four month gig, working 5 or 6 nights per week and usually selling 10 albums per night. Over and above my wages, that adds up to substantial earnings for a no frills folk entertainer. So, I've never really been in the big loop but then few of us have.
I am right in the middle of the process of trying to figure out how to turn this whole digital situation to my advantage.
I've moved my office, set up a studio for practise and performances and have ordered whatever equipment I think I'll need to do pod casts or live performances on the Internet. It is a very steep learning curve for me and I'm easily lost in the technology but not the audience. The one true constant in the folk music world is that the audience is us. We love our folk music and we don't have a lot too spend on it because we're doing things like putting our kids through college so that they can learn how to download free music.
At the end of the day though, if none of this works, we are all perfectly capable of finding venues and there will always be a need for entertainment.