If you could clarify a bit (due to the sentence "I have also had no issues with external modifications to playlists updating within musicbee"), are you talking about initially importing an externally created m3u playlist into MusicBee, or modifying the m3u post-import with an application other than MusicBee? I can see the potential for problems if the latter is the case.
I would also suggest that you import using the native MBP format which provides tons of more flexibility than m3u; you can always EXPORT the list at any time in m3u format, as your settings already show.
I do not have "use relative paths" checked (just "FYI", not because checking it is bad). For purposes probably making sense only to me, I keep the majority of my playlist's music files outside of my actual monitored Library files folders, though of course they still become part of the files that get rescanned during any "Rescan all files" operation. I prefer that they only show up as playlists and not in my whole Library view. My own playlist flow is to create them externally as m3u's via the Kid3 tagger, then modify/add/edit the m3u if necessary with Playlist Creator, and finally import the result into MusicBee in MBP format where further options become available.