If you really want to make an embedded scene from an allready made messiah scene (such as Butch scene in your example) here is how you can do it:
Load LW.
Load Butch.lwo object.
Go to displacement and add messiah:displace.
Double-click on messiah:displace to go to messiah.
Now you have butch object connected to messiah.
Load the messiah butch scene. Remember to select append to scene opposed
to replace current scene so you could keep connected Butch object.
Do not automnatically connect to host because LW will crash.
Go to setup and apply effects to the connected Butch object you loaded in LW at the start.
You can do that by going to setup->effects, select connected Butch and select effect on the right side. Click add for every effect on the right side.
Delete butch object loaded with messiah scene, go to LW and save and thats it.
I have tested it and it works. It is a lot of work but you won’t be doing it often I guess. Once you have an embedded scene you can work with it.
Anyway, I would recommend working in messiah and exporting animation as MDD file. Latest messiah update supports MDD export and you can read it in LW using any of the dynamics deformers (cloth or soft) or MD_Plug or MD_Pointer. It is much cleaner to work this way. Cameras and reference motions can be exported/imported between LW and messiah too. Messiah reads LWs .mot files and messiah can export .mot files using Customize->Motion Dump.
Cheers