I'm on the side of "wet" festivals. Of course, my experience isn't playing to specific folk festivals, but rather to larger outdoors events where I've been part of the entertainment.

The one "dry" event we played was a nightmare. Noone really knew what they were getting into when they sat down at our stage, so every set would generate random smatterings of applause, and maybe 3-4 people trying to clap along. People would smile, nod along with the music, tap their feet, but they'd be too reserved to do anything more.

At the "wet" events, there's always seemed to be more of a party feel to the air, and the crowd usually seems to be more receptive to entertainment and to participating to a degree. After discussing it with a bandmate, we jokingly considered getting a "band drunk" to come along to all our shows, sit in the audience, and be his smiling, clapping, singing self.

Like I said, I haven't had experience with "festivals", but for shows in general, give me one with a bar every time. Besides, we've got to have SOME place to go for when our stock runs out...

M