Following Darowyn's succinct appraisal of the debate I'll attempt to state where I stand, rather than respond to individual posts and risk the sense being lost in accidental or deliberate misrepresentation.

The fiercest advocates of the 1954 definition generally believe the conditions which gave rise to the tradition no longer pertain because of the popularisation of commercial forms of music through commodification, technological changes and advances in communication. Although there are some inconsistencies in that position it is a reliable, even orthodox one to hold. It does however signal certain consequences - folk is not living in the sense that new texts can be mined, only developments from existing material can take place because the seam that informed it has been exhausted.
Enthusiasts for traditional material endeavour to keep these musical texts alive by playing them to other fans in the knowledge that the contexts for their original performance cannot be recreated, or even imagined fully. The music is not 'dead' because it can be performed but it's re-exposure is mediated by the sensibilities of the performer, the staging of it (clubs, festivals, etc) and the sensitivity and imagination with which the original material is handled.

The counter argument runs thus: folk's wellspring was an atomised and economically disenfranchised agrarian working 'class'. Either its subjects are so remote that performances are pure re-enactment and audiences forced to imagine the vicissitudes therein or the subjects are human and universal. If they are ubiquitous and its issues relevant, definitions are a barrier to what is a seamless and continuing populist form.
The two positions are polarised but consistent. Problematisation occurs through a number of factors. First, contemporary folk music is a revivalist form. The sutureless, unthinking, inter-generational accomodation of folk music had largely died out leaving material to be collated by those outside the culture which gave rise to it. Conclusions were formed at every level from a narrow range of 'heard' songs and an 'exoticisation' of both the performer and the material took place. Contemporary audiences know very little about how the material was perceived originally - was it serious music, did it have wide currency, was it gender neutral, was it thought of as coarse, unfashionable, political and so on.

Secondly, polemicists have aligned folk music with nationalism, left-field counter culture, a re-emergent peasantry, fashion and a variety of other hosts. Folk cannot be divorced from the cultural forces that mediate it, it is in harness to multiple meanings simultaneously.
Thirdly, commercial forces have 'plundered' the tradition causing resistance and fiercely guarded lines of meaning. Vying attitudes to what is irreducible have created an unstable and inherently conservative form with austerity valorised and process mythologised.

I'd like to develop these themes with regard to the OPs question but opera at the Met calls me....for the moment.