Drums and Wires, their 1979 album, is the definitive album for their spastic outbursts. This album does not take it easy, and while it does result in the occasional clumsy moment(Roads girdle the Globe) but their are so many memorable hooks, 'Outside World', 'Making Plans for Nigel', 'Ten Feet Tall', 'Reel by Reel' are just charming in style and life.
But as many have already mentioned, Skylarking is their masterpiece. That is the point where they almost achieved their Beach Boys/Bacharach pop harmony and grace.
I only own 'Drums and Wires' and 'Skylarking' I feel those are most essential of the two phases in XTC. The group are a bit hippie-ish at times, sometimes uneven, though their best moments are quite treasurable.