Let me start by saying that every year, when we go to World Fantasy, the industry leaders shrug off all attempts at categorization with "It's a bookstore thing that isn't really applicable anywhere else." Then they turn around and set up categorical themes (last year's con was focused on horror, and this year it's dark fantasy), so they argue against themselves. So is SE right about the need for labels? That's an entirely different discussion, and possibly a deeper one, than simply figuring out what those labels are.
Kije has a very good point about setting and public perception, though. My mother-in-law, for example, refuses to have anything to do with Tolkien or "high fantasy," and yet she reads the Harry Potter books--despite the fact that the characters in LotR are much more "real" and consistent than those in Harry Potter. It's all about setting, and what you can accept as close to your own reality.
I don't object to the term Magic Realism the way SE does, but I do object to its usage: it's primarily an attempt by the mainstream to dodge the stigma of genre fiction. If anyone else had written the book Beloved it would be called a ghost story and stuck in the horror section; because Toni Morrison wrote it, however, it's suddenly Magic Realism and is acceptable to the masses as real literature.
A better definition of Magic Realism, in my mind, is the one I posed in my review of American Gods. Fantasy shows mundane people doing magical things (like Frodo visiting elves and fighting goblins and whatnot), whereas Magic Realism shows magical people doing mundane things (like the angel living with the chickens in "A very old man with enormous wings"). the trouble with this definition is that it doesn't really apply to many of the books already labeled as Magic Realism (such as One Hundred Years of Solitude), and thus breaks down.
But I'm getting off track, since I don't think I'd call Mary Poppins or Groundhog Day Magic Realism anyway. Field of Dreams, maybe, though that is presented as more of a religious story than a magical one (dealing, as it does, with the aftelife and the guiding influence of an omnipotent force). I'm tempted to say Modern Fantasy, since that's another common industry term, but it's completely unrelated to the Modern literary movement and is thus a little confusing (by that standard, Beloved would be called a Postmodern Fantasy). Nevertheless, if you describe a book or movie as a Modern Fantasy, most people know what you're talking about the same as if you say High Fantasy.
The term Contemporary Fantasy is not one I've ever heard before, so I'm going to assume that SE made it up in a fit of helpfulness. On the surface it seems like just a rephrasing of Modern Fantasy, and thus redundant, though it does manage to sidestep the confusing realtionship to Modernism. The trouble is, I don't really think that Contemporary Fantasy and Magic Realism are trying to say the same thing, so arguing which is better is kind of pointless. The two are only in conflict when the latter is used incorrectly (mostly by people like Toni Morrison who don't want to be thought of as Fantasy).
Dang, sorry for the huge post.
