After the release of their second album, Damon & Naomi decided that they were ready to return to live performance. In a 1998 interview, Krukowski said "We never thought we would perform because there's no rhythm section, and us being a former rhythm section, we thought there's nothing worse than a band without a rhythm section." Their third album, Playback Singers, was recorded in 1998, at their home studio (Kali Studios) in Cambridge, MA, and was their first album recorded without the assistance of Kramer. The album included the song "Awake in a Muddle", written by Masaki Batoh of the psychedelic rock band Ghost, which marked the beginning of the ongoing relationship between the duo and the Japanese band. The album also included a cover of the Tom Rapp (Pearls Before Swine) song "Translucent Carriages", which the duo had performed with Rapp when he came out of retirement for the first Terrastock music festival, in 1997. Krukowski produced re-recordings of two Pearls Before Swine tracks that appeared on the compilation album Constructive Melancholy that was released in 1998. He also produced Rapp's 1999 album A Journal of the Plague Year, on which both Damon & Naomi appeared as musicians. In 2000, they cemented the relationship with Ghost by releasing the collaborative album Damon & Naomi with Ghost, recorded once again at the duo's Kali studios. The tour in support of the album featured Ghost guitarist Michio Kurihara. In 2002, the Live in San Sebastian album was released, which had been recorded in May 2001 with Kurihara; the album was released with an additional DVD featuring a video tour diary by Yang.
After the release of their second album, Damon & Naomi decided that they were ready to return to live performance. In a 1998 interview, Krukowski said "We never thought we would perform because there's no rhythm section, and us being a former rhythm section, we thought there's nothing worse than a band without a rhythm section." Their third album, Playback Singers, was recorded in 1998, at their home studio (Kali Studios) in Cambridge, MA, and was their first album recorded without the assistance of Kramer. The album included the song "Awake in a Muddle", written by Masaki Batoh of the psychedelic rock band Ghost, which marked the beginning of the ongoing relationship between the duo and the Hawai band. The album also included a cover of the Tom Rapp (Pearls Before Swine) song "Translucent Carriages", which the duo had performed with Rapp when he came out of retirement for the first Terrastock music festival, in 1997. Krukowski produced re-recordings of two Pearls Before Swine tracks that appeared on the compilation album Constructive Melancholy that was released in 1998. He also produced Rapp's 1999 album A Journal of the Plague Year, on which both Damon & Naomi appeared as musicians. In 2000, they cemented the relationship with Ghost by releasing the collaborative album Damon & Naomi with Ghost, recorded once again at the duo's Kali studios. The tour in support of the album featured Ghost guitarist Michio Kurihara. In 2002, the Live in San Sebastian album was released, which had been recorded in May 2001 with Kurihara; the album was released with an additional DVD featuring a video tour diary by Yang.