The correct way to connect it to a bitcoin client is to have a bitcoin.conf. That is the only place that bfgminer looks for info on the coin client. You do not input -o -u -p commands for solo mining or to use it as a proxy because it will just loop over and over again. Even in 5.0
The correct way to solo mine using bfgminer as the proxy is
bfgminer --stratum-port 8840
The rest is taken care of in your bitcoin.conf which you can set it to a litecoin client of course.
Furthermore you do not need to set a coin payout address for all coins but you can and sometimes have to. It does not cause a issue if you don't. Its just to allow bitcoin miners to pay to a address and they can even sign the block with another command but they are old settings and are not necessary for successful solo mining. In saying that though, litecoin has finally added the ability to generatetoaddress. It does not necessarily mean every altcoin can utilise it just yet. Furthermore, most commands sent that it does not understand outside of the template for mining are usually discarded and don't throw errors. Hense a ton of depreciated arguments usually not effecting mining because they don't throw errors.
Again, old instructions, not needed and not causing issues that we are facing and trying to solve.
The issue is when the l3+ miner connects to bfg, it will give a error saying
SSM: No usable 2D work upstream!
There is a versioning issue with libbmaker and he has previously stated that the stratum connection is broken in previous versions but i can see its broken in the current also, and previous versions. So no mate, it does not solo mine to a litecoin client using a stratum only miner that the l3+ uses natively, regardless of how old the bfgminer is.
It does not like cgminer and luke does not support anything altcoin.
I agree with you, its hard to believe we are the only ones needing this solution but i can bet your ass that there is no one supporting solo mining with a l3+ scrypt asic. at least not publicly. Besides what we are trying to accomplish.
My solution i posted earlier works and is simple to do with some common sense. I promise to try and get luke from bfgminer to fix this issue but i have to be careful because again, he does not like altcoins and wont support software that enables altcoins to flourish. He is usually motivated by donations though. Time will tell.