Well put, Calum.

I think virtually all of Dylan's songs are basically a snapshot of how he was feeling on the day he wrote the song. They are a series of images that carry the strongest feelings that were moving through him at that moment. His gift is that he just goes with the images as they arise spontaneously and he doesn't intellectually question the process. He doesn't second guess himself. That results in very evocative and powerful writing that doesn't follow the usual "rules" laid down in rigid and literal minds which are not in the least concerned with responding to the feelings in the song, but insist on analyzing everything to death like counting how many Angels can sit on the head of a pin.

Because Dylan's lyrics arise directly out of the many (and sometimes quite contradictory) feelings that are going through him when he writes the songs, they connect to many different things that are happening both in his life and around him...so they work on many levels simultaneously.

I think your interpretation is a good one, and it relates to at least two of those levels...personal relationships and the music business impacting the folk music.