While Sgt. Pepper and TSMR were getting all the attention at the time of their release, there was an alternative underground (and not-so-underground) scene developing, one offering a very different music.
It is not for no reason that those two albums sound 180 degrees out-of-phase from the albums that were leading the way to the future, though the music contained on the two following albums already at the time of their releases sounded as if from a bygone era: Bob Dylan’s John Wesley Harding and The Band’s Music From Big Pink, both from the first half of 1968, just as the bitter aftertaste of SPLHCB and TSMR was becoming apparent.
I blame the musical missteps on LSD. While the Dylan and Band albums sound grounded, organic, and honest, The Beatles and Stones (and many of their contemporaries) sound just the opposite: lost in space, contrived, phony. That damn drug led to some really bad music (Psychedlia), not to mention the ruin of some musical talents (Skip Spence, Peter Green, Brian Wilson, Brian Jones, Eric Burton).
Eric Clapton says Atlantic Records President Ahmet Ertegun’s reaction to hearing the acetate of Cream’s Disraeli Gears album was "What a load of psychedelic horsesh*t". The Dylan and The Band albums were cleansing the palate, so to speak, wiping the slate clean, forging a new beginning by returning to the roots of the music that was the inspiration for an entire generation of writers, musicians, and singers, including those who, like The Beatles and Stones, had lost their way. Clapton felt exactly that way upon hearing MFBP, and promptly dissolved Cream, going to West Saugerties, NY (location of the Big Pink house in which the Basement Tapes were recorded), waiting for The Band to ask him to join. Naw, Eric, we got it covered. ;-)