Here’s one answer, taken from Terry Eagleton's Literary Theory: An Introduction 25th Anniversary Edition. (Malden, UK: Blackwell Pub, 2008) (that's Eagleton on the left).
“ . . . by and large people term ‘literature’ writing which they think is good. . . .
It is not that writing has to be ‘fine’ to be literary, but that it has to be of the kind that is judged fine: it may be an inferior example of a generally valued mode. Nobody would bother to say that a bus ticket was an example of inferior literature, but someone might well say that the poetry of Ernest Dowson* was (that's Dowson on the right). The term ‘fine writing’, or belles letters, is in this sense ambiguous: it denotes a sort of writing which is generally highly regarded, while not necessarily committing you to the opinion that a particular specimen of it is ‘good’.
“With this reservation, the suggestion that ‘literature’ is a highly valued kind of writing is an illuminating one. But it has one fairly devastating consequence. It means that we can drop once and for all the illusion that the category ‘literature’ is ‘objective’, in the sense of being eternally given and immutable. Anything can be literature, and anything which is regarded as unalterably and unquestionably literature—Shakespeare, for example—can cease to be literature. Any belief that the study of literature is the study of a stable, well-defined entity, as entomology is the study of insects, can be abandoned as a chimera. Some kinds of fiction are literature and some are not; some literature is fictional and some is not; some literature is verbally self-regarding, while some highly-wrought rhetoric is not literature. Literature, in the sense of a set of works of assured and unalterable value, distinguished by certain shared properties, does not exist.” (9)
*Ernest Dowson (1867-1900) was an English writer. I have never heard of him, but according to our good friends at wikipedia, he is responsible for the phrase “gone with the wind,” which appears in his poem: Non Sum Qualis eram Bonae Sub Regno Cynarae (which is Latin for "I am not what I was, under the reign of the good Cynara"). The following lines are taken from the third stanza of that poem (to hear the full thing, see below or click here):
I have forgot much, Cynara! gone with the wind,
Flung roses, roses riotously with the throng,
Dancing, to put thy pale, lost lilies out of mind;
But I was desolate and sick of an old passion,
Yea, all the time, because the dance was long:
I have been faithful to thee, Cynara! in my fashion