As a man who was taken to court for obscenity in his own works, Allen Ginsberg certainly knew what he was talking about when he wrote that letter. However, he was speaking of the 1952 version of the On the Road manuscript, not the novel read by me, which was published, much changed, in 1957. I’m only acquainted with this original manuscript because I accidentally started reading it, before realizing my error about 20 pages in. I can say from firsthand experience, then, that the revised edition is more censored and strikingly more organized. I suspect that one of the unmentioned reasons publishers would have (and had) avoided the novel was because of the chaotic, paragraph-less rambling of the original manuscript.
Still, it is certainly true that the novel is very personal and full of inside references, though I think these help serve Kerouac’s intended autobiographical effect. There is definitely more “sex language” in the manuscript Ginsberg spoke of, which would have driven away publishers in staid 1950’s America. But in the end, it seems, this supposed edginess, though considerably toned down in the final version of the book, attracted readers. Ginsberg was temporarily correct in his prediction, but in the end those things he believed would keep people away from the book actually drove them to it.