Dave - the definition states: "The term does not cover composed popular music that has been taken over ready-made by a community and remains unchanged, for it is the re-fashioning and re-creation of the music by the community that gives it its folk character".

A wonderfully vague expression which can, and doubtless will, be interpreted differently by various protagonists.

With regard to the example you gave, a "composed popular" song has been "re-fashioned" "by a community". It therefore qualifies as a folk song according to the definition.

Now wait for the howls of indignation.....