Re castles, Edinbugh Castle is ok, but waaay touristy. *Much better to make a side trip (via rail) to Stirling Castle.
For traditional folk music, can always just show up at Sandy Bell's near the University of Edinburgh or The Tass in a touristy part of the Old Town, but better off making the bus or taxi trip to the Leith Folk Club. **One of my favorite pubs is by Leith - the Starbank. *There are cool pubs everywhere, but tell them to stay away from Rose Street in the New Town.
Assuming they're going to walk by the Grassmarket (picturesque, but again, touristy), tell them to walk south to Greyfriars Kirk near the university. *The church is cool (Ethan and I saw a concert here - and if there is something going on, it's worth seeing there), but the cemetery is much more interesting imho.
One of the neatest venues is The King's Theatre. *It is soooo classically Victorian, but wonderfully rundown so the whole place has a waaay past it's prime funky feel. *And they do have some interesting music and theater (and some schlock)
One of the best things to do is to walk to the top of Arthur's Seat. *Incredible views atop Edinburgh and across the Firth of Forth. *If they are doing the touristy Royal Mile thing, they can get to it from the park behind Holyroodhouse Palace. *It can be cold, windy and rainy up there - best to head up in the morning.
My favorite hotel is The Bonham at the west end of the New Town.