"According to the 1954: "...it can likewise be applied to music which has originated with an individual composer and has subsequently been absorbed into the unwritten living tradition of a community." So is The Chapbook Heritage a case of exceptions proving rules? Or is it a further indication of just how flabby, ill-considered and unrealistic the 1954 definition actually is?"

I think too much can be made of this. An individual musician writing down a tune or a song as an aide memoire does not invalidate the idea of it being absorbed into a tradition. Other, different versions may still exist alongside. However if a published text is regarded as the definitive version, and referred to in order to ensure accuracy, then it is not a folk song.