The question is about trying to define what is and what is not acceptable in a "folk context". That is impossible - it depends on the folk club, the audience and the individual. Where I draw the line is probably different from where you draw it. To make things harder, it can shift according to circumstances - so an established performer of traditional songs throwing in a pop song as a light-hearted encore is more likely to get away with it than an unknown floor-singer who is trying to build his act around it.

I have had some great evenings at folk clubs listening to music which on paper I wouldn't think was "acceptable".

It's simply impossible to define where to draw the line.