A couple of thoughts on the process steps as set out at the top of this thread.

I don't see that a song necessarily has to be "popular" or widespread in its original form, before it can enter into the folk process. After the first person makes and sings it, the next person can learn it and change it, a bit or a lot, without necessarily anyone else knowing it or even hearing it once. Obviously the more people who hear it and like it, the better chance that one or more of them will pass it on, but that level of popularity might be reached only after the song has already been knocked into shape in the first few transmissions. Even now, when YouTube and the like allow any old crap (as well as gems) to be made available to the world, the original author might not seek that.

Also the folk process doesn't always consist of small changes for the better or the worse. Some songs (particularly some of the "big" ballads) exist in radically different forms, which surely must be due to people occasionally taking an existing song and completely rebuilding it.

Richard