I used "%filename%" as the filename format for both "Save" and "Local File Search" settings. It can save the lyrics founded correctly as "MyMusic.lrc" according to the audio file name, e.g. "MyMusic.ac3" in the playlist.
It looked like lyrics3 insists that both [%artist%] and [%title%] tags have to be embedded in the audio files, otherwise, the MyMusic.lrc will not be loaded into the "Lyrics Show Panel 3". This explained that the lyrics of some mp3 files failed to show if these tags are not set in the file.
I think the only field that is mandatory for (automated) lyrics3 search to work is - %artist%
I tested this with your settings (%filename% in both places) and it works as expected for me.
you can enter arbitrary data in %artist% tag it won't make the difference. but without %artist% tag it refuses to do search at all.
I also found that lyrics3 does not honor the search order in the setting. The Local Folders will be searched last.
can't reproduce that on my side. working as expected for me. it can still keep searching for synced on the web if it finds only .txt file locally (this is according to preference). but the order is correct, i think.
I would be most grateful if someone can show me the correct settings for simply letting lyrics3 load the local lyrics files which have the same names as the audio files.try to fill %artist% tags for all your files and retry. there's not much i can propose.
PS: tested only with mp3