The user can either have the music file in the folder (usually done when providing a seperate download link for high-quality (and high filesize) OGG tracks, negating the need to redownload 100MB+ in some cases every time the pack is updated), or the music can be built into the NXP within Flexi Toolkit (usually done with relatively small file size musics, such as those in IT format).
Regarding whether or not to include the extension in the music rotation / editor: It won't do any harm, but there's no need to include it either. When trying to actually find the file, NeoLemmix first discards any extension that's present, then checks all supported extensions in a predetermined order (OGG is highest priority, I don't remember the rest of the order beyond that all waveform-based formats (WAV, AIF, MP3) have higher priority than all tracker formats (MOD, IT, XM, etc)).
One other thing with custom sound effects for graphic sets - only WAV is officially supported at this time (this will change in the future). Others should work if you select them anyway, though, as long as NeoLemmix supports those formats in general (so an OGG sound effect should work fine, but a MIDI one won't).