"One thing I do find though, is that whilst I might be able to slip a Traditional Ballad into a performance of Free-Improvisation or Experimental Ambient Electronica, one could never return the favour. I guess non-folk audiences are more open minded as regards musical possibility."

Hmmm, well thinking of the free improv folk treatments on the violinist Sylvia Hallett's album "A boy leaves home", it's hard to tell which camp you'd place them in (http://www.efi.group.shef.ac.uk/labels/mash/mash004.html)

(or I could have similarly mentioned Martin Archer's album "Heritage & Ringtones" http://www.discus-music.co.uk/dis18cd.htm)

What I mean is, if it's a successful hybrid then you shouldn't be able to describe it as "an interjection of folk into free improv" OR "an interjection of free improv into folk". It's just a something.

I take your point though: musicians from other musics experiment with folk in a way that folk musicians don't seem too with other musics.

...though typing it, I'm not sure how true that is...