Many ideas get coalesced when "folk music" is discussed and much depends upon definitions. We are, as you say, in some ways still in the shadow of the protest singers of the first half of the 20th century and perpetuate some of their politics.
The protest songs of a Woody Guthrie are the songs of a minority. Were these songs ever the expressions of the mass of the people? In America, disadvantaged groups are always minorities. Their goals are different and often clash. The farmer in Kansas would never have the same opinions as the garment industry seamstress in New York and neither would care much about the problems of the other.

Can these protest songs be grouped with the story, play-party and general amusement songs preserved in the Appalachian and elsewhere, even if, in some cases, both types of song were sung by the same balladeer?

This ought to loosen a few of the cobblestones in the street.