@larsman: "Who’s to say it was wrong"? It was Clapton! Of course many of his then peers didn’t agree with Eric, and continued down the path Clapton decided to veer off of. Jimmie Page certainly didn’t agree, and his new band after The Yardbirds ended (a band whose original guitarist was of course Clapton, followed by Jeff Beck!) pretty much set the course and created the template for the future of Rock bands. Ironically, Robert Plant is now making music much more like that of The Band than that of Led Zeppelin. He finally "grew up" ;-) .
You’re right, there was a lot of Country-Rock going on in 1968. Dylan with his John Wesley Harding album, The Byrds with their Sweetheart Of The Rodeo, and then The Flying Burritos after Chris Hillman and Gram Parsons left the former. After the breakup of Buffalo Springfield, Richie Furay started Poco. But all those bands were far more Country than Rock.
On the other hand, The Band was not at all a Country group. They were equal parts R & B, Blues, Gospel, Brill Building Pop, 1950’s Rock ’n’ Roll, Hillbilly, Jazz, and just about every other strain of American music. That’s why they are credited with creating the genre now referred to as Americana.
By the way, Elton John and Bernie Taupin have stated that in their Tumbleweed Connection album they were trying to sound like The Band's brown album. Neil Young said the same about his Harvest album, and he was obviously thrilled to death to be on stage with The Band in the Last Waltz concert.
I saw The Dead live only once, on a flatbed truck in the panhandle in Golden Gate Park in the Summer Of Love (1967). Also performing that day were Jefferson Airplane (hot!) and Country Joe And The Fish (cold). At that time The Dead still sounded like their drug of choice was speed, kind of a biker band. Pig Pen was singing,and playing a Farfisa organ, so they had that Garage Band sound heard on their debut album.