There are many different views within the traditional music community regarding the preserving, contributing, developing of our collective music.
At this point I would like to state that it is the variety in opinion, musical taste, background, interpretation, creative work and performance that is the key strength in traditional music. It is moulded by many hands and continues because of that.
The preservation view is just as important as the innovation view (and lets not simplify this by pretending that we all stick to just one view!) or for that matter the 'natural development' view or the 'middle of the road' view or the 'mixed up' or 'don't want to have a view' views....
Anyway, some comments on different perspectives:
There are those who see innovation as essential to the development of traditional music, this is smaller-scale innovation which has always been a part of traditional music and contributes to its gradual development.
There are a few who see innovation as destructive: damaging to the strands of tradition handed down to us. Who want to preserve what we have inherited. Of course what we have inherited may have been altered any number of times.
However, in the intricate structure of traditional music and its community - even the most enthusiastic champions of innovation often have strands of tradition that are important to them and want to preserve and protect them for future generations.
When we talk about a Living Tradition, I think all of these strands should be taken into account to build up a picture of the complex, moving, developing, growing entity that doesn't always agree with itself that is 'the tradition'.
My personal feeling (if it isn't already becoming obvious) is that it comes down to the treatment of tradition. If a musician isn't well informed and knowledgeable (in particular the unspoken kind) then the likelihood of their musical products being an inappropriatre treatment of tradition are high. This is one of the main ways in which we attribute value to music in the traditional idiom.
The process of music filtering down and being repeatedly moulded and sifted through by musicians with the help of their audiences is like evolution, survival of the fittest. Of course 'the tradition' not only consists of a central body of repertoire and knowledge that goes with it but all of the related music surrounding it - larger-scale works, a variety of music developed for different contexts, collections of material that come in and out of popular use (particularly in Scotland with our lengthy mix of oral and documented tradition) - and this has long been the case.
So to sum up on a personal note: make it as innovative as you like but if you don't understand and respect the sentiment of the roots of traditional music then don't pretend that what you do has anything to do with tradition.
I could say more about the apparent requisite for apprenticeship in traditional music (or any music) in order to understand and absorb enough of it to be able to express yourself adequately through it, but I think that is for a different post!