Meaning of "sterile perfection"

Your second reading is correct. The writer intends to imply that digital recordings lack "soul", not that they are uncontaminated.

You are right- the analogy is with a hospital or laboratory: sterile meaning functional, no imagination, clean etc.

So here it would imply that the music is technically perfect but has no flash of brilliance or creativity.

Sterile also means unable to reproduce, and I think the metaphor is similar to dead. Any music lover will tell you that a musician can bring feeling and excitement to a piece in a way a computer could not; it's just lifeless.

The second definition you quote is in the right direction for this context, but perhaps slightly misleading. The writer's complaint is not that music on CD lacks imagination or creativity -- it may or may not -- but the third part, that it lacks vitality. It is, as TymLymington says, "dead".

The term "sterile perfection" is a common phrase: the writer you quote did not invent it. It is used to describe an artistic, literary, or similar work that meets all the technical criteria, but is nevertheless lifeless. If a poem or song had perfect rhyme and meter, if it was about a stirring emotional subject, and yet when you listened to it lacked that undefinable something that makes it interesting and moving, you might say that it had a "sterile perfection".

I'm not much a music lover so I don't have much to say on the idea being expressed.