Xylophone? I would have thought if you held a note for a couple of beats it would stop sounding like a xylophone pretty much immediately.

Melodica used to be used a lot in reggae; I think there's one on the Clash's Armagideon Time. The Beta Band used it on a few tracks, too. Dunno about folk, although if your fingers are quick enough you shouldn't have too much trouble making it sound a bit like a concertina. You might want to invest in one of those squashy tubes to put in the mouthpiece, so you can have the keys flat in front of you.