"the songs are anomalous products of a community rather than the deliberate work of individuals "
The problems arise when people take an either or approach rather than recognising that the songs are a product of both and more - all part of what we call a 'folk process.'
You only have to look at the Ulster ballad repertoire to realise that it is a product of their having travelled a distance (largely from Scotland) over a great length of time - unless you want to argue for a bard, pen at the ready, waiting at the quayside for the next batch to arrive. I don't know enough about it but I'm pretty convinced that the same is true of the Appalachian repertoire.
As far as I can see it has to be a mixture of deliberate re-creativity, accumulated change while in transition and even misunderstandings and mispronounciations due to unfamiliarity with dialects and accents (a sort of cultural 'Chinese whispers').
All of these factors could be seen to be in play among the Travelling communities right up to their losing their traditions thanks to portable television.
There really is nothing 'mystical' about it - it's what happens when information of any sort is orally transmitted.
"The problem with folk music is it's been largely defined from the outside"
Why should this be a problem? We are ALL outside observers of many things; it doesn't prevent us from assessing and reaching an opinion, and as long as we have done our homework, who knows, we might just have got it right!
Jim Carroll