I think it is funny as hell to read this now. Here are some bits:
...the most unreasonable project with which we have ever involved ourselves.
It's apparent that nobody in your organization has enough influence over Phil Lesh to evoke anything resembling normal behavior.
With their attitudes and their inability to take care of business when it's time to do so would lead us to believe that they never will be truly important.The Dead were certainly weird in those days. Anthem of the Sun is one of their more out-there and experimental efforts. But it has some gems, including attempts to capture their astonishing jamming of that period on pieces such as The Other One (cf. 1968 version and 1989 version).
It's not surprising that music industry folks thought they would fade away. Looking back over the long history of the band (they continued until the death of Jerry Garcia in 1995), it's clear that the Grateful Dead were never going to fit comfortably in the music industry. They didn't make product, they created an atmosphere in which music could come into being. Sometimes it was pretty lame, but mostly is was fabulous.
Letters of Note adds that the producer referred to in the letter eventually quit the project; "apparently the final straw was a request by guitarist Bob Weir to create the illusion of 'thick air' in the recording studio." I remember reading or hearing about this -- I think in Phil Lesh's memoir Searching for the Sound -- as an example of Bob Weir's inventiveness. Lesh says, if I remember who said this, that what Bobby was really going for was the sort of compression that is now a standard tool in all recording studios. It didn't exist in 1967. They hadn't invented it yet. But Weir knew it was needed.