Racer, I think you bring up some really good points. I never give a new student any theory. I draw a few simple chords that are specifically used in the song being learned. Beyond that, I'll introduce some type of rhythmic strum that's easily mastered. That's it for starters.
When a lot of us began to learn to play, there were no teachers of folk styles. Our heros were all self taught and we figured if we weren't self taught as well, we wouldn't be authentic or valid or something. The first time I met anyone who could sing and play the guitar, I asked him how he learned to play. I wasn't very old so I was thinking music lessons, scales, recitals, years of very slow progress. He told me no one taught him, he just bought a book with chords in it and put them to the songs he wanted to sing. Well, that just blew me away. It had never ocurred to me that one could learn something without going through a long, formal and unpleasant process. The good news is that he was right.