Ericroyer, good point about "If this were true everyone would have to be a musician to appreciate music." There are loads of people who come to listen who don't play anything, and some who don't sing along on choruses. So why do they pick folk music? Perhaps it's precisely because folk has a small audience. At its biggest, folk has a bunch of small audiences, spread out all over. The people who don't play have friends who do. They can share a beer with the musicians and ask about the music. This is a good thing if people want to really be a part of the music. It's not so good if people expect celebrities, because most folk musicians I've met don't consider themselves celebrities and are uncomfortable being treated like one. Let's face it, the "star" is a major factor in pop music.

(Cynical mode) So someone who's used to -
"Wow, that new CD by Mucous really rocks, and did you know the bass player has a discussion forum and sometimes even answers questions? Wow - he really cares about his fans. Did you see that picture of him in "Guys With Guitars" magazine? Ooh...that sequined kilt was incredible!"

...gets to a folk venue, and thinks -
"Well, he's cute, but where's the spandex? I saw him in a shop the other day, and he was actually chatting with ordinary people. He can't be too good if he doesn't have a bodyguard. He's just one of us - nothing special."