I have this album too and 100% agree. Buy Paris Texas on vinyl and it will blow your mind.
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Having thought about it some more I can't see any reason why the soundstaging 'issues' on 'Bop Til You Drop' can have anything to do with it being a digital recording.
Wikipedia has this to say
Cooder and his excellent band, which includes the rhythm section of Tim Drummond and Jim Keltner along with guitarist David Lindley, understand the material and are more than capable of laying down a decent groove, but something must have gotten lost in translation from what was played to what came across on the recording. There's a thinness to the tracks that undermines the performances, which according to Cooder is due to the digital recording.[8]
So seems to be Cooder himself who first put the idea out there - although the reviewer seems to think the problem is that it sounds 'thin' rather than anything to do with soundstage.
I can think of a few analogue recordings which might be described the same way. But this is a production choice and therefore intrinsically part of the art.
There's no reason why it would sound thin due to digital recording either. Although it's possible that with the tech being fairly new they didn't use it right I suppose.
With digital recording the one thing you don't want to do is exceed 0db and clip it - so with early digital recordings (and transfers done from tape to digital for the first CDs) there was a tendency to overcompensate for this by keeping levels low in mastering. (Now we have the opposite issue where they ram it all the way up, even into clipping aka 'The Loudness Wars)
The solution with these 'thin' CDs is just to turn it up a lot more on playback - assuming the playback system is capable of this - which many are not even to this day.
I think it was the first album to be digitally recorded and they were getting to grips with the technology and didnt get it quite right. I have the album on vinyl and it sounds not only thin and washed out but very processed. The fact it comes across like this on vinyl means something was definitely amiss as I have hundreds of albums on vinyl taken from digital masters but they don't sound digital unlike their counterparts on CD!
According to Wikipedia 'The album was the first digitally recorded major-label album in popular music', not the first digital recording ever made or released.
I doubt the engineers had no experience at all with the equipment but agree they could still have been getting to grips with it.