The option to create either the logical path or file on the fly is no longer supported. See OSS Note 1598439.
Symptom
LSMW doesn't Check for SCC4 settings and allows creating Logical file/path in 'Specify file' step if the Logical file/path doesnt exist though the creation is not allowed based on the system settings.
Reason and Prerequisites
LSMW allowed creating the Logical file/path if it did not already exist in system without even checking if the creation was allowed in system based on system settings.