"Folk" long ago ceased to mean just "traditional" - Woody Guthrie was being described as a "folk singer" in the 1940s. (Is there a difference between American and UK usage? Did "folk song" ever mean "traditional" in the way it did in the UK, at least prior to the second folk revival?)

There can be no question (I hope) that "folk" includes "traditional". The question is, what besides traditional music can be considered to be "folk"? The OP has argued that anything can be "folk" if its performed in a "designated folk context". Leaving aside what is meant by "designated", this still leaves the problem of defining what is meant by a "folk context" - even if it is just a gathering together of people with intent to commit folk, this still demands some understanding of what "folk" means, which brings us back to where we started, needing some sort of definition.

If I see a CD labelled "folk", I don't expect it necessarily to contain traditional songs. I do expect to find songs which have some affinity with traditional songs, and/or performed in a style which has some affinity with either traditional or revival performance styles. I don't even necessarily expect to enjoy it, but the description "folk" gives me a pointer towards music which I'm likely to enjoy.

In reply to Pip Radish, I don't consider "May You Never" to be a "folk song" - in my mind that is still synonymous with "traditional". It is "folk" in the wider sense. A subtle distinction,which perhaps others won't agree with.

I am not so hidebound as to insist that "designated folk contexts" should put on only folk, whether meaning traditional or in the extended sense of the word. This is, after all, entertainment, not an academic exercise - if a performer wishes to occasionally throw in something from another genre, then I'm happy to tolerate that, especially if it's performed well and preferably in a folk style. But it shouldn't be necessary to pretend that it's folk, and it should be the exception rather than the norm.