Mt View, AR gets my vote. There are a few other small towns in north Arkansas that have acoustic music sessions: Bentonville (That's where WalMart started, you know.) has lots of music on the square every Friday throughout the summer and fall. Rogers does the same on Saturday nights. Eureka Springs has festivals, but nothing that happens on a regular basis that I know of.

It also depends on what you call folk music. The sessions at Rogers and Bentonville are mostly bluegrass or country before 1960.