Which track are you trying to replace? I will check if there is a problem with the loopback controls.
Also, does it happen on every track?
Okay, so I just tested a few tracks outside of the Music Options, and they loop just fine. Odd that it doesn't do that within the options, though.
I did encounter a rather glaring oversight, though: If you've set Panic Puppet 1's music to custom, it doesn't play during the opening cutscene. I know that the game is reading the file correctly, because it plays in the Music Options menu… just not during that particular instance. I haven't gotten far enough in the game to test to see if it in the Zone itself, but I assume that if it works in Options, then it'll work in-game.
A lesser, but still annoying bug is that some Custom settings revert to Mega Drive when going into Music Options. It isn't every one, though; I've noticed it for Green Grove 1, the Super music, and a handful of others.
I'll be looking into those, thank you for reporting!
EDIT: I fixed the issue for the loop in the menu and the problem with the tracks resetting to "MD", but I didn't have the issue in the story screen, the custom music for panic puppet zone played correctly. I'll be uploading those fixes with version 1.15. Thanks again!