However, and with the utmost respect, its utter bollocks.

You can't play Folk in a Jazz club because Folk does not exist as a corporeal genre - it is vague umbrella term for a variety of possible genres including Traditional Balladry. Traditional Balladry existed long before anyone thought up the term Folk Music; it will exist long after the term Folk Music has been forgotten. You have a lot of hypothetical objections, but nothing (apart from insults) to support your counter-argument. Meanwhile, here is some Jazz being played as Folk Music by Folk Musicians:

http://www.youtube.com/watch?v=88cJTlXU42k

And here is some Jazz being played as Jazz by Jazz Musicians:

http://www.youtube.com/watch?v=wyLjbMBpGDA

I love both these people dearly; both sing to me with equal beauty and human warmth. One is Folk, the other is Jazz (although wasn't it Louis Armstrong who once said...?)