All of what we consider to be Literature came from the Oral Tradition. Stories like Beowulf, The Odyssey, The Illiad, are the foundations of our language and story. These stories were created with breath and given to the air through a scop or someone like Homer usually accompanied by a Harp or instrument. Dylan is simply an extension of that, therefore, I consider his work Literature.
You can read his lyrics off the page or listen to it with music, both have their individual effect and emphasis on the word. Add a different voice to it, the effect changes. Change the instrumentation, and the meaning/mood will change. One could argue that Dylan's writings are more dynamic than a novel in that regard.
Take Shakespeare and his works as an example. Reading a Shakespeare play is dramatically different from witnessing it. The lines take on different meaning based on individual performances by actors & actresses. Make changes in tone, setting, backdrop, costume, and performers and the play takes on a different meaning and effect for the audience. Change the audience and you'll change the play. Dylan's lyrics can be read from the page for one effect, then performed in many different ways by different people using different instruments; each singular way projects a different interpretation and meaning.
Take, for example, "All Along Watchtower". It can be read one way on the page without any singing or instruments (I read the tone very different than the album version - pleading, desperate); however, listening to his version off of "John Wesley Harding" can impart a different mood and voice (laconic, matter-of-fact). Then, take Hendrix's electrified version and the song takes on a completely different meaning (apocalyptically urgent, intensely fried) . It's great Literature either way and up for endless interpretation.
There is also the argument that a lot of modern Literature, and even some of the writers that were/are also in consideration for the Nobel (Murakami is the most obvious), wouldn't be possible without Dylan's lyrics. His influence both on artists and language is undeniable and, at least in my opinion, larger than any other modern writer.
Dylan's lyrics contain everything great Literature has: story, characters, conflict, theme, and a universal appeal. They can be read off the page, sung to yourself while you walk up a stream, witnessed in concert with thousands of others, performed by anyone, and translated into other languages. Without Dylan's work, the culture of the world and the literary landscape would be without a foundational block that thousands have used in order to create their own art.