Last night at Wordos we were discussing Hugo nominees and invariably drifted into the "is it science fiction, fantasy, or literature?" realm. I think the answer to one story is "yes" -- but on the other hand, the science part of some of the stories was pretty soft. Sort of like if Dracula was a story with blood-sucking creature who could turn into a bat, but it focused more on the marital conflicts of the Harkers.
In any case, it seems like science fiction and fantasy are picking up more literary bits from magical realism or slipstream. This confuses the hard science fiction folks, and I'd have to admit, sometimes when I'm reading a story expecting it to be hard science fiction and it veers into literary territory, my initial reaction is to wonder why the author didn't do more research, because [dirigibles, water, computers, whatever] don't really do that. And then to realize, "Oh, dirigibles are a metaphor for sex--so that's why they look like that in this story" later.