Bonnie 'Prince' Billy, Cecil Sharp House, London

Cecil Sharp House, in Primrose Hill, London's home of folk music and country dancing, is all a-bustle with activity tonight. One downstairs room hosts a convocation of fiddlers; from another comes the startling fusillade of several dozen stamping heels as a flamenco class gets into its stride. Upstairs in the main hall, an unassuming-looking chap with a bushy moustache and a receding hairline takes the stage before a full house, several dozen members of which are actually sitting cross-legged on the floor, an audience posture rarely seen since the advent of punk.

Since assuming the stage name Bonnie "Prince" Billy, Will Oldham has gone from strength to strength, refining the blasted folk blues of his years working under the Palace Brothers moniker to produce a series of classic albums shot through with the pain and ecstasy of traditional music. His latest collection, Master and Everyone, is one of this year's finest releases, an anthology of quiet, haunting songs about love, money and spirit that offers a bracing alternative to today's over-processed music.

In concert he's an odd performer, punctuating his songs with little knee-bends like some cartoon copper, and even the occasional skip. He has a way of baring his teeth at the end of some lines that's quite creepy, and during "Wolf Among Wolves" what on record was an understated "la-la-la" becomes a keening howl. He has the odd instruments to match, too: a red Resophonic guitar with a large circular metal resonator plate, and the amplified autoharp with which he opens the show. "What is it?" someone asks. "It's an extension of my left ribcage," he replies. "My father was a piano."

Traditional folk and country music has always had a keen apprehension of mortality and sin, but even by the benighted standards of Harry Smith's Anthology, Oldham's fascination with sex and death seems extreme. Perverse, even, in the way that he generally does cheerful songs about death and miserable songs about love and sex. "Your love has thorns, it hurts so much," he sings in one song; in another, "I can't offer a thing that's better than dying, so take it"; while in "The Way", the opener and high point of Master and Everyone, he entreats a potential partner to "let your unloved parts get loved", the most disquieting chat-up line in popular music.

But elsewhere there's a bawdiness that sits strangely with the hushed, almost pious manner of his delivery, as he sings, "She's a fine-looking lady and she loves to go down on one knee/ and I love to go down on her too", or muses in "Death to Everyone" about how "the stars they turn/ and my balls they burn". Perhaps the quintessential Bonnie "Prince" Billy song, in the way it ties sex and death together ("Death to everyone is gonna come/ And it makes hosing much more fun"), this finds Oldham at his strangest, his head uplifted in ecstasy as he does a jolly little dance, reflecting cheerfully upon the prospect of impending doom. In another life, he would probably have made a splendid fire-and-brimstone Bible-basher; even in this life, his worldview is streaked with a harsh religious morality.

But despite all the dark, troubling aspects of his art and performance, there's a quirky, beguiling warmth about Oldham that allows an easy rapport with his audience. When someone asks him to play "I Confess", he doubts whether he can remember all the words, so he and the suppliant end up doing an impromptu spoken duet, sketching out the lyric between them, eliding over sections - "then there's a bit about the wife and the daughter" - and finding themselves at odds over the line "my head was bleeding". "My head was breathing," corrects the man in the audience. "No," affirms Oldham, "my head was bleeding." Well, of course it was.