Les - a rather arbitrary and superficial analysis of what we understand by and know of traditional music.
Much of what you describe certainly did take place; on the other hand, much has been done since the early days to take up the slack and repair many of the holes in our knowledge. Even what we have put together over the last half century has allowed us to arrive at some sort of reliable estimation of what constitutes traditional song and music.
One thing as certain as Margaret Thatcher ain't going to win no more elections is that we have a body of song which stands apart from all other forms and which once fulfilled a unique function in communities throughout the world apart from that of composed music from outside those communities. Add to this the "I know it when I hear it" observation and you've got your definition. We chose long ago to describe that definition as 'traditional' and that is the label we're stuck with until someone comes up with a better one.
Language isn't by any means a comprehensive communicating tool, but without it we might as well be grunting at trees.
Jim Carroll