Spence,
This is how I define Folding: If a player makes a forward motion with cards, this indicates his intent to fold. Is the hand dead if he changes his mind? No, not if he can retreive the cards. That decision could put the player at the mercy of the floor, especially if that player has a reputation for making such moves. However, ruling a hand dead, that is not in the muck, is wrong.
Taking a good look at the situation, we need to understand who is at fault. The first mistake is the all-in player who thinks he's in an uncontested situation and folds his hand.
The next person facing the responsibility of controlling the situation is the dealer. If he returns the hand to the all-in player and tells him there is another player still in the hand, play continues. If the dealer mucks the hand (which he has every right to do), the hand is dead. That's it! The all-in needs to protect his hand and the dealer needs to control the action at the table. I look at all of the situations that are debated every day on this Forum, and I blame the dealers for most. Good dealers will control the action by letting you know where the action is and when it is your turn to act. They will stop you from acting OOT before substantial action occurs. They will recognize an improper action, or bet amount, and correct it before the problem occurs.
The original situation posted by DocWilson indicates to me that the all-in player obviously thought he won the pot. What player would push all-in, and then fold the hand, knowing another player was still holding a live hand?