Hmm, weird. That feature should work but it has some strange edge cases. Can you provide me the save file? I believe I bought a copy of LSDj at some point so I should have the ROM somewhere.

OK, I've made some progress and perhaps gotten closer to the root of the problem:

The above video comes from a more recent build of LSDJ not considered "Stable" (v9.1.1). Attached in a zip with the .sav below:

lsdj9_1_1 2.zip

It does work as intended in other emulators, though. Earlier I did just download a fresh download of the most recent Stable build (8.5.1) and it actually works as intended, so I'll just use that one for my needs instead. Attached that in a zip with a little demo of it below:

lsdj8_5_1-stable 2.zip

LSDJ has recently moved to a "free to download" model on their own website, so I'm going under the assumption that including the specific build's ROM in the zip file is alright for these purposes. Thanks!

LSDj versions above 8.7.7 utilise "Zombie" mode envelopes in order to expand possible volume envelope range.
More about the mode can be found here:
https://gbdev.gg8.se/wiki/articles/Gameboy_sound_hardware#Obscure_Behavior

Even though site warns that trick doesn't work on some consoles, LSDj sucessfully performs this trick on all available official Gameboy hardware, and accurate emulators like BGB, Sameboy, Gambatte

Implementing this feature would mean step closer to accuracy of mgba

I do implement zombie mode (to some extent) but I believe it's disabled on GBC based on what that page said, which I guess is wrong. I guess I should revisit it though.