Gift of the Year, Band of a Lifetime: Empire!
While Generation X certainly doesn't fall into the lost bands category, an offshoot of the band featuring two Gen X members (drummer Laff and guitarist Derwood) does. Empire put out a record in '81 that apparently got little to no backing from the label and has since become relegated to cassette tape and burned CD distribution by the likes of Henry Rollins and other die hard proteges, many of whom most likely crashed on the Dischord house couch a time or two. It turns out Empire has become known as a major influence on the emo scene. After listening to it, I'm not sure there could have been an emo scene without it.
The band's limited oeuvre was finally released a while back as the Expensive Sound album. Well, I got the CD for a Christmas gift, and our stereo was pumpin' that shit out pretty much non-stop after I unwrapped this forgotten gem. As a big-time fan of old school D.C. and emo stuff like Soul Side, Rites of Spring and of course Fugazi, it amazes me that I never heard of these guys, and saddens me that I never heard their stuff till yesterday!

Honestly, I can't remember the last time I fell so hard for a band so immediately. Rather than try to describe their stuff, I urge all lovers of punk rock, even if yer not big emo fans, to track down the Empire CD (you should be able to buy it from the label, Poorly Packaged Records). You won't be disappointed.