I think "performance" is used in the same way as "singing", not so much the "theatrics" involved. When it comes to the generic term of "pop", it's hard to beat what Dionne was doing at that time. What Diana did on "Mountain" was much more edgier than anything I would've considered pop at the time. On top of that, keep in mind that most of the actual verses of "Mountain" are not of Diana singing at all. It would be hard for even me to cast a vote for a song where a singer is doing mostly spoken word vs one where the singer is, well, singing throughout.
If Diana was going to be nominated at all in the pop category at that point, I think "Reach Out and Touch" was worthy of nomination, even if it still would've lost out.
Same thing with "Love Hangover". For all of a minute Diana does any real singing. After that, when the beat kicks up, Barbara Martin could've probably sung the rest of it and sold millions. What Nat and Ree did vocally with their songs is a whole other world from what Diana did. Vocally not even in the same league. Now had she gotten a nom for "I Thought It Took A Little Time"...now there's a worthy opponent for "Sophisticated" and "Give Him Something", even though it probably would've still lost out.
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