It does look like there's no way anymore to write XMP data for a JPEG file. I'm guessing the "Include development settings inside JPEG, TIF, and PSD files" option switches between writing them in the file, or writing them to the CATALOG, not XMP files.
I think it was back in version 1 that you could use XMP with JPEG; I recall that I had to turn that on because Finder and a number of other utilities on the Mac were crashing when they saw certain LR metadata in JPEGs, due to a bug in the OS that was eventually fixed (but not quickly enough!)
Anyway, I think there should be a way to export the develop data into XMP files still. For one thing, it can help you send in your settings for a validation (which is how I got here today!)
By the way of bugs/design flaws: the problem with writing metadata back to the file itself is serious; despite the fact the many LR books and pundits push DNG because the RAW files can then be stored with settings and no sidecar files, is INCREMENTAL BACKUP! If you tweak the settings on a DNG file, the whole file needs to be backed up again! Rather than a itsy bitsy XMP file. So embedded XMPs for files you edit in LR just don't make sense to me...I'd rather be touching only the little XMP. And of course, there's the date issue, and the potential for file corruption. XMPs have the disadvantage of being separate files, but they still are a better solution than writing to the file IMHO.
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