Only "Strawberry Fileds Forever" and "Penny Lane" are from Sgt. Pepper's sessions, the rest is from the Magical Mystery Tour sessions. There're three singles included, and the Beatles used to include two singles in some early albums, but I don't think that the number of singles is important, the point is that all songs are from a defined period of time, all released in 1967, early or later in the year. And the Beatles released it as an EP in UK because they didn't want to include singles in albums, but this doesn't mean that the LP was not a great idea. I admit it's not a proper album as the others, but at this point I think we can consider it as an official Beatles album, though it won that title several years after its release.
I think the Beatles tried out the double EP format because they didn't have enough new material for a full album, but they wanted the songs to be released anyway, to go along with the release of the film.
To avoid the double EP format, they perhaps could have released a five-song single EP of songs from the film, omitting Walrus because it had already been released as B-side of Hello Goodbye. But Walrus was part of the film and it belonged with the other film songs, I suppose.
So they were left with a dilemma - there were too many MMT songs for a single EP but not enough new material for an album.
They tried out the double EP format but, basically, it didn't work - people were by now paying more attention to albums and not just seeing them as vehicles for their hit singles, plus EPs had had their day, with the sales of Beatles EPs falling steadily from their peak in 1963. And the price of a double EP wouldn't have been far short of a full LP price.
So, over time, people in the UK started buying imports of the US album version and it ended up becoming the accepted format, getting an official UK LP release in 1976. It also made sense to use the album format when releasing the Beatles songs on CD for the first time, so that really put the official stamp on it.
I think the band (in the UK at least, where they had some control over what was released) were against using too many old songs on new albums because it didn't give good value to the fans. So they didn't initially agree with the idea of packing the six MMT songs with old singles and B-sides.
There was another option though - I wonder why they didn't just use songs that were left over from the Pepper sessions. Weren't It's All Too Much, Only A Northern Song and You Know My Name already recorded by late 1967? They could have used these on Side 2 of an album, along with Hello Goodbye, AYNIL and BYARM, and had a soundtrack side and a non-soundtrack side (like AHDN and Help) and they wouldn't have had to use SFF or PL, which were a year old by that time.
Also, that album would only have had two A-sides (Hello Goodbye and AYNIL), which fitted with what they had done in the past.
It also would have contained eight unreleased songs out of the twelve, representing good value for fans.
Not sure if it would have been a very strong album, especially following a masterpiece like Pepper, but it would have been a fantastic psychedelic LP nonetheless ....Side 1.
Magical Mystery Tour
The Fool on the Hill
Blue Jay Way
Your Mother Should Know
I Am the WalrusSide 2.
It’s Only a Northern Song
Baby, You're a Rich Man
You Know My Name (Look Up the Number)
All You Need Is Love
It’s All Too Much