BLUEGRASS MUSIC continues to thrive in the self-contained world of small clubs, small labels and big summer festivals. It's still the most old-timey of country styles and, interestingly, the most progressive. A new generation of young pickers continues to expand the music's song sources and styles, all the while retaining the tradition of blistering acoustic play in ensemble settings.

WHITSTEIN BROTHERS -- "Rose of My Heart" (Rounder 0206). This may be the finest traditional country album of 1985. Charles and Bob Whitstein's exquisite harmonies and adroit acoustic backings are a pleasure in themselves, but it's the Whitsteins' guileless, heartfelt delivery that makes their songs glow. Even "Bridge Over Troubled Water" gains a new life through their tender, nearly spiritual treatment.

OLD AND IN THE WAY -- "Old and in the Way" (Sugar Hill 3746). This album reissues a historic 1975 release that captured live a one- shot band of celebrated acoustic pickers drawn together by their love of the classic bluegrass sound. Jerry Garcia of the Grateful Dead, David Grisman, Peter Rowan, Vassar Clements and John Kahn have all played more tightly in other contexts. But there's a freewheeling spirit here reflected in the song selections, such as the Rolling Stones' "Wild Horses," that is contagious. Garcia proves himself a capable banjo man (it was his first instrument), but it's Rowan's vocals and Grisman's dazzling mandolin that carry the show.

BLAINE SPROUSE -- "Brilliancy" (Rounder 0209). Sprouse was raised on traditional bluegrass but now amplifies his fiddle playing with more eclectic stylizations. This all-instrumental album teams Sprouse primarily with two notable bluegrass progressives, the New Grass Revival's Sam Bush and Bela Fleck. The results are imaginative extensions of bluegrass into more exotic and jazzier terrain. The waltzes, rags, jigs and breakdowns here don't just conjure the old mountain home, but also the Western plains, Scottish Highlands and even a Turkish bazaar.

HOT RIZE -- "Traditional Ties" (Sugar Hill 3748). This increasingly popular Colorado bluegrass quartet turns in an album of mostly traditional folk and mountain tunes with bluegrass arrangements. Tim O'Brien isn't the smoothest lead singer around, but his soulful hillbilly voice can dramatically break into a lonesome line or a yodel. Each time that signals another blistering banjo run from Pete Warnick. With so many bluegrass bands playing and singing as clean as ice these days, it's nice to hear a young band that stresses the spirit and intense emotionalism of the music.

THE MARSHALL FAMILY -- "Best of the Marshall Family" (Rebel 1632). As with most bluegrass gospel groups, the Marshall Family's forte is harmony singing. The emotional kick of this group, though, resides in Judy Marshall's glorious soprano voice which dominates this collection of its best recordings.