As someone living in Seattle during this whole "grunge" thing, I have a slightly different, slightly jaded perspective on the whole thing.
First, most every Seattle band was over-exposed and overrated at that time. Mudhoney's "Overblown" captures this feeling well. It did not matter whether you could play a note or sing in pitch, if you wore tattered jeans and flannel, some label was going to sign you.
Second, Nirvana was the standard-bearer for this over-exposure. Initially, because they had a pop hit in "Smells Like Teen Spirit" that was played 24-7 on MTV. Also, because the other "grunge" bands didn't fit the mold the rest of the country (aka MTV) needed to keep it accessible. Soundgarden was too metal (except for "Outshined" which was poppy in a similar vein as Teen Spirit.) AIC was too dark and heavy (there were very few radio hits on "Dirt.")
Pearl Jam, if people remember, refused to be on MTV after releasing the "Jeremy" video. And, at the time, Jeremy was overplayed in the same way "Teen Spirit" was. By removing themselves from MTV, the spotlight shone even brighter on Nirvana. And the legend grew. However, many people in Seattle grew sick of Nirvana during that time.
Third, the effect of Cobain's death cannot be understated. A very good NY Unplugged session becomes legendary. A very good Nevermind album is soon considered one of the greatest albums of all time (and the weaker studio follow-up albums are forgotten.) And suddenly, a marginal (and I'm being kind here) guitar player is now idolized.
I still believe Nirvana is great, albeit quite overrated. But again, perhaps I'm jaded...

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