Okay, on first glance, it seems good. Can you open the dev logs, turn on verbose logging and try starting a game in Formamorph? It might tell us why the AI can't process the information.
For some reason it won't show me anything in the dev logs when I try to start a game, it only shows when the server is running. I have verbose logging on, but it isn't showing me anything.
The game doesn't seem to be reaching LM Studio at all. Otherwise, even without verbose logging, there would be an entry to show that the AI has received a request.
Maybe check if the URL or the model name have a typo? Since you are using the desktop app, it should be reaching you just fine...