Folk clubs since their inception have always had a mixture of traditional and contemporary songs and I don't think this has changed much over the 60 years. That goes for the repertoires of floor singers and professionals. I don't think anyone here, Jim included, would say that that is not healthy. Even those who throw in the odd pop song from their youth still largely sing material from the folk scene. (Dave Burland for instance).

The OP was asking about the gradual decline in floor singer standards. I don't go into folk clubs that often simply because I prefer the total involvement of a session (I'm hyperactive), but I have seen the singarounds go from strength to strength in introducing newcomers and improving the standards of performers already there and some of these do go to folk clubs. If floor singer standards are starting to fall in some areas then that is perhaps a matter for the organisers to address. A lively scene has a good mixture of sessions, singarounds, clubs, workshops, concerts etc.

Nearby York and Sheffield have always had a lively scene thanks to a few dedicated souls like Roland Walls and Ron Day. In Hull we have started to address this in the last 5 years partly by setting up a charity 'Folk in Hull' so we are all singing from the same sheet. There are plenty of young people involved. Currently most of them just want to entertain and sing good songs and we are not trying to ram English traditional material down their throats, though they are beginning to take an interest in where the songs come from.