SS, I don't have the patience to refute your lengthy post in detail. Here are are few brief comments:

Interpretation is not the same as variation. Of course there is scope for individual interpretation, whether it is a violinist playing Mozart, an Elvis impersonator singing "Blue Suede Shoes" or Hendrix doing "All along the watchtower". However in all these cases there is an original version which they are consciously interpreting. This is not the same as a variation, whether deliberate, or through forgetfulness or misinterpretation, which is then passed on because there isn't an original definitive version to go back to.

You can tell if someone is singing the wrong words to "Streets of London" or "American Pie", because there is a single, correct version of those songs. It is not possible to sing the wrong words to a folk song, because there is no correct version.

Writing down a song or a tune doesn't stop it being traditional. The Copppers wrote down their songs as an aide memoire, just as numerous country musicians wrote down their tunes. However those are just their versions of songs and tunes, which existed, and still exist, alongside theirs in other versions. The Coppers' version of "Claudy Banks" is not the "correct" version, it is simply one version of many.

Just because a song is in widely known among the general public doesn't make it a folk song. "Happy Birthday" is widely known throughout the world, and passed on by oral transmission, but the words and tune remain unchanged.

I think you are confused on two counts. Firstly, if you take the eclectic, anything goes approach then you don't need a definition - if all music is folk music then the term is redundant. Secondly, you are confusing a process with a genre. There is nothing to prevent jazz, or George Formby, or heavy metal songs from becoming folk songs by the processes outlined in the 1954 definition. The obstacle to this is the existence, and awareness of the existence, of "correct" versions of these songs, but given time it is possible that these will be forgotten and new versions will emerge.