A number of questions come to mind.
1. When I work with raw files from the camera, I would like all annotation to go into an XMP sidecar file and I would like the the raw file unchanged. What preferences should be set to do this? I would like the XMP sidecar data to take precedence over any metadata in the raw file.
2. When I work with a DNG file, I would like all metadata to go into the DNG file and have no sidecar file created. I assume the preferences to do this contradict the ones for the above question, and that I can't have DNG files treated differently than raw files from the camera.
3. Why ever create a sidecar for DNG? A strength of DNG is that it is a documented format and sidecars aren't needed. AFAIK, Adobe software only ever creates a sidecar for a DNG file when it encounters a read-only DNG file. DNG files are not like other raw files and should not be treated as such. (Feature request / bug report.)
4. What does PM do with existing embedded DNG metadata when it creates a sidecar? Does it copy all the existing metadata into the sidecar and then add its changes or additions?
5. (Perhaps a question for the Adobe DNG forum.) What does the DNG converter do when it processes a DNG file with an associated sidecar file? It creates a new DNG with no sidecar, but it has two sets of metadata to deal with. I assume it honours the sidecar as Adobe would only put data there when the original DNG can't be written.