I have discussed the lyrics to All Along the Watchtower in connection with Bob Dylan’s version, released in November 1967 as a single and included in the album John Wesley Harding the following month. Jimi Hendrix doesn’t change the lyrics much. Instead of Dylan’s “outside in the distance a wildcat did growl”, Hendrix sings “outside in the cold distance a wildcat did prowl”, which is only a slight improvement in creating an ominous mood. The real improvement is in the psychedelic interpretation of a song that had been written in a mode that deliberately set a sober face against the psychedelic wizardry of the age. Hendrix recognized the psychedelic imagery in the lyrics and brought out their sonic possibilities. It is reported on several internet sites that Dylan has performed All Along the Watchtower more than any of his other songs, and prefers to perform it using the rhythm and attack on acoustic guitar that Hendrix composed for it.
To Jimi Hendrix, the Dylan lyrics are a springboard for interpretation on guitar, with every verse separated by an instrumental break, not to mention that the song has an instrumental intro and coda. The break between the second and third verses is particularly spectacular, because the break includes three guitar solos in succession that keep the beat but produce entirely different tones and melodies. According to Wikipedia, engineer Tony Bongiovi has described Hendrix as becoming increasingly dissatisfied as the song progressed, overdubbing more and more guitar parts, moving the master tape from a four-track to a twelve-track to a sixteen-track machine. Bongiovi recalled, "Recording these new ideas meant he would have to erase something. In the weeks prior to the mixing, we had already recorded a number of overdubs, wiping track after track. [Hendrix] kept saying, ‘I think I hear it a little bit differently.’” [Eddie Kramer: Setting the Record Straight (1992), p. 175]
In the story I’m telling about the Psychedelic Masterworks, the album Electric Ladyland marks the end of the classic psychedelic age. There would be a further residual period, usually blending ever more with other popular genres (hard rock / electric blues / progressive) until by the end of the 1960s it was rarely heard as any more than adding color. Psychedelia only rarely was successful in inspiring songs during the 1970s. Of any song heard by the majority of interested people, All Along the Watchtower from Electric Ladyland is the best represenative of the generally optimistic tone of psychedelia, its belief in the steady progress being made toward the true music of the spheres. It’s amazing that a song so important in retrospect barely broke into the Top 20 of the U.S. charts. Even with the full fireworks of Hendrix’ virtuosity, by October 1968, psychedelic music wasn’t selling well on the radio.
The successful career of the Jimi Hendrix Experience was entirely based on an audience that bought albums based on exposure through a few FM stations and the recommendation of Rolling Stone magazine and other music publications. Live concerts, particularly the band’s filmed performances at the Monterey Pop Festival in 1967 and the Woodstock Festival in 1969 got the word out too. But the Jimi Hendrix Experience never got TV exposure on the Ed Sullivan Show, which had been an important disseminator of publicity for the Beatles, the Rolling Stones, the Doors and the Jefferson Airplane. (On the other hand, the Experience’s direct competition, Cream, had appeared on the Smothers Brothers show, featuring Sunshine of Your Love, in 1968.) As far as I know Jimi Hendrix appeared on American TV only once, on the Dick Cavett show in 1969, after Noel Redding had left the Experience and was replaced by Billy Cox to help form Hendrix' new group, the Band of Gypsys. The Gypsys eschewed psychedelia to explore the emerging funk genre.