I corrected my first post. I think 12.9.4 reintroduced the bug, it was also in some builds way back when. Perhaps it has come and gone in some intermediate builds since 12.9.4, my libraries are all portable so it doesn't affect me personally. I don't know exactly what preference isn't getting updated, or where it is stored, I only know that I've seen plenty of people report it since 12.9.4 came out. It doesn't necessarily manifest itself with an existing library, unless perhaps something happens to cause iTunes to forget the existing setting, after which you cannot choose the folder you want and have it stick.
FWIW I have vague recollections that at one point it was easy to switch between multiple portable libraries, or multiple libraries each sharing a single media folder, but when switching from one type of library to the other you might need to update the media folder afterwards. iTunes has always been a bit of a logic puzzle.
tt2