You're not supposed to use milk in the gravy. The recipe clearly states HEAVY CREAM. Whisking and flour which thickened the gravy should also prevent any curdling. Any sourness could have been negated by a tiny bit of sugar added to the gravy. Perhaps you used buttermilk for the gravy instead of heavy cream. or milk.
The bacon is mainly used to flavor the oil, much as southern chefs swear that rendered lard from hogs make chicken (and pie crust) taste best. But frying bacon is easier than rendering your own lard. So the dish was never intended to taste like bacon, but rather be perfumed by it. The bits of bacon on top are a used mainly as a tasty garnish.
The chicken was okay. Unfortunately we could not taste the bacon, so it mostly just made it a little more unhealthy. The addition of the sherry to the gravy was the big problem. Not only did it give the gravy a sour note but it curdled the milk and made the consistency less smooth.