This age-old debate has been rekindled thanks to a new advertising campaign from Sorbent. I am a folder. My reason, other than one of familial habit, is one of structural integrity.
Given the same length of paper (although scrunchers seem to use more) there is a predictable and reliable amount of paper between you and disaster. Sure, scrunching may potentially put a thicker wad over your fingers, but, being a randomly formed structure, there is a distinct chance that you may poke through a gap. That's a chance that I'm not willing to take. Folding has the added benefit of the wipe/fold/wipe combination - I can't see how you could do that with scrunching. The only downside I can see is that it may take longer to fold, but I think this is a small price to pay for increased hygeine and may be obviated by a decreased handwashing time in the event of 'exposure' as a result of unlucky scrunching.
I'm happy to debate any valid argument against folding. Despite the fact that I will never change, I may come to accept scrunching as a valid if not flawed method.