Headrush69

Seems you are passing the exe to Project64 and not a rom file, hence why it won't load.
I downloaded this game (so cool BTW), but you have to use the included file start-wwf-with-music-tool.bat to start.
So pick the game in LB, right click and choose Edit Metadata. In the launching section, pick that BAT file as the file to start. Now go to the emulation section and turn OFF use emulator.  Should launch fine now.
 

Turn OFF Extract Roms archives in the settings for Retroarch in LB.
Retroarch handles looking into archives. This would explain why you are getting the Temp as an override, as LB is unzipping the file first, than sending the game to Retroarch.
So a content-directory override is because the archive was unzipped in the Temp folder.

You can but it might ackward and have the same issues you might be looking to avoid using the builtin Retroarch override system.
I don't use them anymore, but you can pass Retroarch the location of the Retroarch config file and at the very least have that config put the to a different location for the options file.
Retroarch doc is here.
Not that I know of.  You could also use a prelaunch command to copy/modify the options file manually  which wouldn't tie it to the name. I have use this in the past but it's cumbersome to maintain (easier using Joe's bulk editors), but I find it was easier just to use the built in options for my sanity rather than trying to remember what hacks/routines I used for specific games.