After reading lots of discussions of this topic, and after trying to with no success to pin down my own elaborate opinions on the subject, I have come to define folk music as follows.
Folk Music: Anything that some group of musicians at some folk festival are likely to get away with playing more than once.
Folk Song: A subclass of folk music (see above) containing sung or spoken lyrics.
Its not very academic or rigorous I know, but after listening to this issue debated over the years, its the only sufficiently inclusive definition that I can think of short of "Anything is Folk Music".
I also think it reflects the one thing that has kept this debate going (and going...and going, thump thump thump).
The fact is that, except for those professional and amatuer ethnomusicologists amoung us, we don't usually need our lexicon of musical terms to be very rigorous and well defined. So for most of us, folk is a loose subset of semi-related musical styles, not a specific definition.