I don't see how you can characterise Vic Galloway's response as "grotesque", Jack. The musicians he cites all have obvious folk influences in their work (I'm not familiar with Zoey Van Goey), and whilst none are trad folk, I'd argue that artists like these are vital to introducing folk to people outside the 'scene'. I doubt I'd ever have ended up listening to, and playing, trad folk if I'd not first been a fan of acts like King Creosote.

"I would like to see Polwart try to find her own CDs anywhere near the main entrance of any Scottish branch of HMV, and I can't see Woomble demanding to have all of Idlewild's tracks reclassified as traditional music by iTunes."
-Neither of these things need to happen to demonstrate that folk is thriving. Karine Polwart is a great example of someone coming through grass-roots folk to find real commercial success, and Woomble's solo stuff since Idlewild is folk tinged with indie (not the other way around).

Acts like Lady Gaga are, sadly, always going to be more heavily promoted than anything coming from folk music, because, well, that's capitalism! But that doesn't mean people (even teenagers!) aren't hearing folk in various different forms, from crossover acts to new takes on trad folk (eg Kris Drever). Of course mainstream commercial media are dominated by trend-driven MOR mediocrity, but just like I don't expect to get offered arbroath smokies in a McDonalds, I don't look to HMV to represent the best of what's current in music. Folk is reaching new audiences, and I personally don't want it rammed down my throat on car adverts, blockbuster film soundtracks, or other accessories of big mainstream promotion. Careful what you wish for.