The Vaselines have a few nifty songs
Wishbone Ash - Argus
Jefferson Airplane
I consider Spirit massively underrated as well, so allow me to associate to their mention.
And as you already mentioned McDonald and Giles (do you happen to have guitar tablatures for their LP, by any chance?), I’ll throw in Olias of Sunhillow by Jon Anderson of Yes fame and Tago Mago by Can.
I agree with pulykamell, Big Star’s #1 Record is the first one that comes to mind, with their second album, Radio City right behind it. If you don’t own these - and they are available as 2-albums-on-one-CD, you really should get them immediately.
After that, I vote for Jeff Beck Group’s Truth - lost in the shadow of Led Zeppelin’s first album it rarely gets mentioned when listing great 60’s electric blues, but it has some of the best lead guitar work I have ever heard.
Yes! I couldn’t believe how good those songs were. As good as anything since the heyday of Bolan, Bowie, et al.
(don’t have time at the moment for my picks)
“Gram Parson Grievous Angel”
You’re right from a lack of commercial success point of view, but this album gets critical raves and it (and Parsons) influenced just about everyone who came out of CA in the 70s (Eagles, Poco, Flying Burrito Bros., Linda Rondstadt, Jackson Browne, etc.). Emmylou Harris was the true disciple (I’ve never got it straight in my mind whether they had a romantic relationship or not) and she appeared on the album, IIRC. Unfortunately, Parsons was the prototypical “die young and leave a nice looking corpse” kid of guy. I guess he never guessed his friends would steal his body and burn it at Joshua Tree National Monument.
I’ll stick to albums that are actually “rated”: there are plenty of albums that I have heard no one comment on at all that are nonetheless very influential and great, but you can’t be under-rated if you aren’t rated at all!
My nomination: ummagumma by Pink Floyd. It seems to be everybody’s first choice for an early PF album, but primarily for the title and the title of SSoSFAGTiaCaGwaP. These erstwhile Floyd fans then actually listen to the album 
and throw it in the trash, and thus also write off all other early Floyd albums.
Ummagumma is not starter Floyd! But only the last quarter of it is truly horrible.
I always liked the Stones’ Metamorphosis but it gets little praise, isn’t easy to find and I rarely hear cuts from it on the radio.
Camper Van Beethoven
Not the two releases off of Virgin (actually, My Beloved Revolutionary Sweetheart may be one of their best albums, I just think it has received a lot of fame), but if you look into their earlier years, you shall find a trove of wonderful music. I personally like their self titled record the best, but it is all a matter of opinion.
From the Tempe music scene came the Gin Blossoms, but a lesser known band called **The Refreshments ** also hail from the same area. They put out an album titled **Fizzy, Fuzzy, Big and Buzzy ** which is an absolute delight. It’s straightforward rock and roll with a dash of western, riddled with bright, witty lyrics and some really solid musicianship. It’s got a more mainstream sound than some of the other albums mentioned on this thread, but it’s still quality stuff.
I’ll second Fizzy Fuzzy Big and Buzzy and I’ll add Pet Your Friends, by Dishwalla - it’s my third favorite album (my first two favorites are very very good buy hardly underrated).
Hijack: I still chuckle when I remember Cecil’s column on the subject, where he speculated that the perps could be charged with ‘Gram Theft, Parsons’.
A Storm In Heaven by Verve. It’s virtually the only decent shoegazing album there is, which is pretty amazing seeing as it came from the same band who made Urban Hymns.
I love The Vaselines! The Way of The Vaselines is definitely worth checking out.
I’ll also second the recommendations for Camper Van Beethoven (although Our Beloved Revoultionary Sweetheart is my favorite CVB album), The Soft Boys’ Underwater Moonlight and The Replacements.
Prince’s Parade has some of his finest work on it, but it has been unfairly tarnished because it is the soundtrack to Under the Cherry Moon, which is one of the worst movies of all times.
Sorry I haven’t posted, but I was on day trip. Anyway. I agree that X-Ray Spex are fantastic. I am also a huge fan of Can (hehe, rhymes), especially for the influence they have had on modern electronica music.
Another one I’d like to nominate which is fairly well known in Europe, but not so in America is Pills ‘n’ Thrills and Bellyaches by the Happy Mondays. They basically invented remixing, and they started Paul Oakenfold’s career. Amazing stuff.
That’s partly a point I was trying to make. Pretty much all of the albums listed here would not be considered underrated by any music critic or dedicated listener.
If it makes Rolling Stone’s Top 500 (a mainstream music magazine if there is one), then it’s hard to make the argument that’s it’s underrated. If you go to allmusic.com and look up these albums, the bulk of them will be in the 4 to 5 star range. Really. Pink Flag is a classic. So is Underwater Moonlight. So is #1 Record.
So is Pills & Thrills & Bellyaches.
How about Big Star’s Third/Sister Lover? Now that’s the one that perhaps the critics will like but rarely comes up in discussions like these.
A Nod Is As Good As A Wink…To A Blind Horse by The Faces is an excellent, obscure album. The combination of Ron Wood’s (later of the Rolling Stones guitar and Rod Stewart’s vocals is really rocking. 
Ditto on the Pretty Things. Wire and X-ray Specs too.
Try the Residents.
I couldn’t agree more. Wire is always worth a spin.
I’d recommend Slovenly’s ‘riposte’.
Compared to what was happening in Manchester during the early 90’s with bands like the Stone Roses, the Happy Mondays were relatively poor.