I've been following this thread since its inception because I'm none too sure where I draw my own line. I've read my share of genre fic after which I was a different person than before, and I've read lit fic that aspired to the same thing and left me utterly cold. In my opinion, the difference lies where the focus on change lies: Lit fic has the focus on internal change. External events might be enablers, but they don't get into the limelight. The focus of the author lies in portraying internal change, nevermind because of what external circumstances. Genre fic is different. Here, external events are enabler of internal change, but also drive a separate storyline outside of the viewpoint character as well. I suspect that's the reason why genre fic is sometimes viewed as entertainment only. In the best genre pieces, change is rampant, external as well as internal.