The problem is fixed now and I can no longer replicate it.
Yes, of course I tried going to another menu then back. Here is a list of other things I tried without success:
-server restarts
-power cycling
-uninstalling SL then reinstalling
-turning DoP off and then on
-switching to another player and then back to SL
-trying every other version of SL
-having no other LMSs or SLs running on the network...I added them in to prove that no Snakeoil SL was detectable from any LMS on my network, while another version of SL from sms-200 was detectable at the same time from any LMS.
...and here is what fixed the problem
That entry had been blank for all the testing described above. I inserted the upsampling settings you see in the image and SL started straight away.
I then changed entry to
-r 384000 (still worked)
-p 70 (still worked)
back to no entry (failed again)
-r 384000 (worked)
Today working even with blank entry.
I have no idea what that means but it seemed like just putting in an entry for options at that location cleared something.