I don’t know exactly what’s going on here, but suspect it might be something to do with the material.
Which engine are you using?
See this remark in the tool when I just tried it out:
EDIT: Although, having experimented a bit further, I see what you mean. Higher LODs aren’t taking the painting…
EDIT2: I can get it to apply to all LODs, but I have to do each one individually, bit of a pain…