When I save metadata in Lightroom, it doesn't update the XMP sidecar file, so it must be just updating it's internal file.

Yes, that's normal. LRTimelapse will then use the internal data (because the timestamp of the DNG is newer that that of the XMP.

So when I read metadata from files, it is ignoring the sidecar XMP file even if it has a newer timestamp than the dng file.

No, LRTimelapse will always write the XMP file, and Lightroom will normally use that if it's newer then the DNG file.

That's what's happening on your other computer, right?

It looks like I'll have to try and work it out myself, I'll let you know if I ever get it fixed. Thanks for you help anyway.