I think the backgrounds are all Karen too if I'm not mistaken.
I think we've discussed this before, but the release of 'I Believe You' does seem very random. It was released at the same time as Christmas Portrait, an album it had nothing to do with, Karen and Richard were both in a terrible state and what promotion they were doing in the US was for the Christmas album, it didn't get released in the UK, Dorothy Moore had already had a hit with it the previous year and it wasn't in step with current tastes at the time...
Not totally baffling but it's a great song (okay, the "freckled little girl" line makes me cringe) and it deserved better. The arrangement (by Motown vet Paul Riser) was brilliant and Karen sounded great on it. I think the backgrounds are all Karen too if I'm not mistaken.
I remember K & R having a feature article on the last inside page of a magazine (Entertainment Weekly? Anyone remember?) in late 78/early 79 saying there would be a new album in Spring 79 which explains the single release timing. Perhaps they were hoping for some traction at radio with Christmas Portrait out at the time? I imagine they were still reeling from the failure of Passage and the difficulty the singles had at radio. While I'm in the "would-love-to-hear" category on the studio version of "Thank You For The Music", it would have been an awful choice at radio. It's way too theatrical for the disco-heavy playlists at the time. Even Abba didn't try pulling it from "The Album" at the time of release (and that album broke the Abba tradition of three singles being pulled from each LP in the US). "Dancing In The Streets" never seemed to get an official recording for single release. It is far too short and would have needed more fleshing out for a radio single. Seems to me they were batting around the idea and must have mentioned it to Evelyn. More cover versions...so little inspiration in the Carpenter camp at the time.