The question wasn't "what music is acceptable at a folk club?", it asked for a definition of "folk music". Whilst I agree that the usage has gone far beyond "1954", I don't think it is possible to define it in this usage, particularly at the outer limits.

So far as I can see, there are no defining characteristics which can be applied to the wider usage. It seems to me to be fairly random what is accepted and what is not. Of course there are some modern songs which stylistically fit comfortably alongside traditional songs, but there are others which I've seen described as "folk" which seem to me to have absolutely nothing in common. It seems to depend as much on the credentials of the songwriter and/or performer as anything.

By way of an example, on the "BBC Radio 2 Folk Awards 2008" CD set there is a song, "Bricks", by Tuung. The song is not traditional, nor does it resemble a traditional song, and the style of performance is not what I would consider "folky". In my opinion it's not folk, and I'm bewildered why it's on the CD at all - it doesn't seem to tick any of the "folk" boxes. Clearly, in someone else's opnion (and I don't want to start another Smoothops-bashing debate!) it is folk.

The general public would probably describe songs by Ewan McColl or Cyril Tawney or Ralph McTell or early Dylan as "folk". I'm not so sure they would include Richard Thompson, although for most of us his his songs are probably acceptable in a folk club (I hope so, because I sing some of them). I very much doubt the general public would regard songs by the Beatles or Oasis or Nirvana as "folk", not even when performed in a folk style on acoustic guitar.