I'm not sure you are right about this. It may be true for XMP files, but I have collaborated on a book project where I sent someone a DNG containing my LR adjustments. Once opened in ACR (across the Atlantic) all my settings were there, and more editing was done in photoshop. So with DNG's it is possible to save all the settings in the file, but I think you do need to set a preference to allow it. The edits are also stored in the LR catalog. Because of this the catalog and the file sometimes need to be brought back into synch.
There's no conflict here.
Lightroom's *primary* storage for the edits is the .LRCAT file, the Lightroom database.
IF you're going to use the files with other applications that can read the .XMP data (like the Camera Raw plugin for PSCS)
outside of Lightroom, having LR save the metadata to the files (DNG, PSD, TIFF or JPEG), or to .XMP sidecar files (proprietary native raw formats) is the right thing to do. You can have LR do this by explicitly using the "Write metadata to file" command in the Metadata menu, or by setting the "Automatically write changes into XMP" and the "Include Develop settings in metadata inside JPEG, TIFF, and PSD files" in the Catalog Settings, Metadata preferences pane.
But it's neither required nor necessary if you're only going to use Lightroom to render edit the original files.
The LR .XMP metadata written to sidecar files or into those file formats designed to handle it will contain the adjustment parameters that LR applied to the original files as well as any IPTC annotation. What it doesn't contain is Lightroom's editing history, previews, or virtual copies. Those are stored ONLY in the LR catalog and preview files.
My workflow is 99% Lightroom nowadays. Even when I "Edit in Photoshop" with LR adjustments on an original file, I have Lightroom render a TIFF file which contains all my edits rather than have Photoshop open the DNG or native raw file and read the parameters. So I leave the options to write XMP data to the files automatically off, and only write metadata to the original files when I know I'm going to need it.
G