Well, this thread was spun off from the general definitions thread because I was asking annoying questions a few months ago. In the interim I have been pondering the heck out of the subject, and have come to figure out my own opinion on it. I have decided that it is an interstitial subgenre, defined by content and style and theme. A book about angels in NYC, for instance, might be urban fantasy, or MR, or horror, depending on the style and the theme. MR fits into a very superficial definition of fantasy, but digging deeper it doesn't really fit in. Containing a fantasy element doesn't really make something fantasy (like, every episode Desperate Housewives is narrated by the ghost of a dead woman. But it's not at all a fantasy work, it's entirely mainstream drama.) MR also fits into a broad definition of literary, but then it kind of sticks out with all its magical whatnots.
I recently read a book that was a science fiction magical realism novel. It wasn't a science fantasy, it wasn't SF With Magic In It (TM), it was a science fiction novel and a magical realism novel. The most interesting thing about it was the way the author integrated the SF worldview (objective, based in scientific laws and probability) with the MR worldview (subjective, spiritual, reality based on intention, the literal power of metaphor). There is a pair of twins in the story that embody this dichotomy, which he uses in a really cool way. For every event that could be explained by either the power of magic or the power of science, the author (or characters) explain it as both. So the dissonance between those two ideals is a major theme. So is rural life versus evil corporations, and mankind versus nature, and individual passions versus group needs.
To me, MR isn't anything like urban fantasy. Except that it is a subgenre with its own style and conventions, just as UF is a subgenre with its own style and conventions. And that's what I think.
PS The book is 'Desolation Road' by Ian McDonald, and you should read it.